River's Edge Alliance Group

To Sell a Food Manufacturing Company for Maximum Value, Reduce Seasonality

Posted On: 01-12-2015

Have you ever considered selling your business as a solution to your seasonality problems?  What about acquiring another food manufacturer to manage or eliminate the problem?  

Lower-middle market food manufacturers almost always experience revenue seasonality at some level. Cookie and candy manufacturers see sales spikes around Valentine's Day, Easter, Halloween, and Christmas.  Ice cream and beverage manufacturers experience revenue spikes in the summertime and during the holidays.  This is life in the business. 

Regardless of when your seasonality occurs, the fact that it happens creates cash flow issues.  As a seasoned veteran to this problem, a couple things have probably happened to you over time.  First, you've become calloused to the inconvenience.  Second, you've developed cash flow techniques to more easily manage the ebbs and flows of your business.  

However, have you ever considered selling your business as a solution to your cash flow problems? What about acquiring another business as a means to manage or eliminate the problem?  The idea alone may be a bit overwhelming.  But, keep in mind that you're not alone in your struggles.  Every lower-middle market food manufacturer experiences the same cycles, just at different times of the year. So, wouldn't both companies improve by joining forces?  If their slow time is your boom time and vice versa this could be a match made in heaven!  Why do you think that so many food manufacturers have become large conglomerates?  It all started with one acquisition!  

Let's consider this strategy from a valuation perspective.  Value is determined using a risk versus return analysis.  As risk in your business decreases, value increases and vice versa.  Acquiring a complimentary product line that reduces the seasonality of your business reduces risk, increases cash flow, and increases the value of your existing business.

On the opposite end of the spectrum, as the seller of a food manufacturing company your business is more valuable to the owner of another food manufacturing company.  An acquisition not only adds scale to their business, it reduces the risk of their current business.  As their risk decreases, their value to potential acquirers increases.  The result may be a willingness to pay a higher price for your business.  Your ability to make someone else's business more valuable through acquisition is the definition of synergistic or strategic value.  Strategic value is always higher than traditional fair market value.

Whether you're the seller or the acquirer, when two lower-middle market food manufacturers join forces, value is unlocked.

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