What We’re Discussing with Clients
Middle market business owners are in an incentivized environment to consider transactions. Many acquisitive companies are sitting on strong balance sheets from a resilient period of growth and low-cost of capital. Asset managers are continuing to suggest alternative investment classes, such as private equity and direct middle-market lending, which increases the level of private debt available for middle market deals. This ultimately fuels the M&A market providing ample opportunities for business owner exits and transitions.
Treatment of company owned real estate in an M&A transaction has the potential to unlock incremental value. Real estate capitalization rates, used to value real estate, often differ from traditional EBITDA multiples used to value business operations. Thus, a recommendation that buyers value the real estate separately from the business operations frequently provides incremental value to sellers. Moreover, a third-party sale leaseback buyer may provide a premium value for real estate while not forcing reluctant buyers into real estate ownership; so long as a buyer agrees on long-term, mutually agreeable lease.
If you are contemplating an exit from your business, specific actions should be taken to properly prepare for a sale. Do not discount the value premium a professional advisor can create through early preparation in a sale process. Commissioning a sell-side “quality of earnings”, developing and pursuing growth initiatives, implementing employee retention and incentive plans, amongst many other can help ensure an optimal transaction outcome.
Stable F&B M&A Activity To Start Out 2022
- Global Food & Beverage M&A deal volume decreased slightly in Q1-22 compared to Q4-21, as total deals fell ~6% to 446. Further, the 446 total deals in Q1-22 was ~7% less relative to the prior year period.
- U.S. Food & Beverage M&A deal volume also saw a decline, totaling 150 deals in Q1-22, compared to 172 deals in Q4-21. While transaction activity was lower to start the new year, it is a result of the very active year that 2021 was.
- Strategic buyers represented ~84% of all Q1-22 Food & Beverage M&A transactions in the U.S., slightly lower than the three-year average of ~90% for this buyer group.
- 2021 was a strong year for M&A, partially attributable to sellers bringing deals back to market after a 2020 pause, and a desire to close prior to any potential capital gains tax increases. Businesses continue to experience issues with rising costs, labor market shortages, and increasing interest rates. Companies are benefitting from strong consumer demand, but the macro headwinds could subdue M&A activity relative to 2021, until such issues are resolved.
Read Food & Beverage M&A Pulse Q1 2022 Full Report