Important factors for food & beverage manufacturers when considering M&A

Listen to this article

Consumers frequently change their food and beverage habits as a result of viral social media trends, lifestyle changes, and the ongoing impacts from the pandemic. With a rise in economic inflation and supply chain shortages within the value chain, consumer consumption changes have significantly impacted manufacturers. The current economy may provide a prime opportunity for mergers and acquisitions (M&A’s) in the industry, as it allows expansion and to own more of the market share for larger, more stable corporations. That being said, if your food and beverage business is considering entering a M&A transaction, here are a few things to keep in mind:

The shortage of strong and stable talent

The Great Resignation has significantly impacted the talent pool and retention for most industries, with over 4.5 million employees resigning from their current positions since March 2022 in search of new ones. Due to these struggles, many food and beverage corporations seek to acquire companies with an adaptive and loyal talent base to enhance their business and fill employment gaps. However, mergers and acquisitions can be a stressful time for employees. Companies should maintain an open line of communication with employees and align interests appropriately to ensure a smooth and successful transition.

Opportunities for expansion

Some companies aren’t looking to branch into new product categories but instead take their current offerings to new strategic markets through existing means. Acquisitions are often attractive due to their ability to expand into new geographical regions, allowing businesses to tap into new demographics at a national or international level. Companies must be strategic in their acquisition choices and identify targets that are both affordable and add value to the whole company.

Changes in technology

Another obstacle that many companies face after an acquisition is in the technology and software space. Technology is a crucial component of any business operation and frequently is the area parties aren’t aligned on. For example, suppose you’re acquiring a business that used a different enterprise resource planning (ERP) system. In that case, you could have a situation that requires a thorough and critical examination of the needs of each entity and a selection of the solution that best suits the entire organization’s needs. Changes in technology systems and applications will undoubtedly result in challenges, new practices, and likely resistance from some. However, it is a critical component of integration that warrants dedicated resources and focus.

Cost and margin pressures

Food and beverage manufacturers can’t always predict the impact of variables like inflation. Increases in cost for staple household food products like meat, poultry, and dairy, have driven consumers to find more sustainable options. As seen with the rise of vegan, flexitarian, and climatarian diets, consumers demand more sustainable food options and are understandably concerned about the rising cost of food products.

Small-business labor shortages are also at an all-time high, and manufacturers are struggling to adapt quickly and find affordable alternatives. Inflation is also impacting the cost of capital, which is expected to increase throughout the year. In these circumstances, some companies may benefit from exploring risk management strategies they never considered in the past.

As lenders review their portfolios, they must also monitor the fluid pricing environment to protect market positions and margins. We may see a reduction in lenders’ risk appetite, resulting in more conservative lending practices. Inflation is rising, and this trend will continue throughout the year, impacting labor and supply chain pressures. To mitigate these hurdles, leaders and business owners must adapt and proactively manage balance sheet liquidity, debt levels, and focus on cost containment and efficiency improvements.

Mergers and acquisitions are never easy for food and beverage manufacturers to navigate, but when done effectively, organizations can take steps to make the transition process more manageable and more quickly benefit from the synergies and expected outcomes of the acquisition. Maintaining an open line of communication with the business you’re acquiring – and their employees – fosters a smoother transition and the retention of talent.

Tammy Gamble is a Commercial Practice partner with The Bonadio Group