How To Maximise Transactional Value: Six Best Practices

It appears that Brexit and COVID uncertainties did not put off investors or strategics in the first three quarters of 2021, with transactions in UK food and drink reaching an estimated £5.8bn (YTD ending October 21), surpassing every other year recorded since 2010.

However, the recent pressures arising from supply chain shortages, availability of labour, difficulties sourcing packaging and spiking inflation have resulted in the easing of transactions as buyers become more cautious, with several deals falling through in recent weeks.

Although multiples paid on food transactions typically average 9-11x EBITDA, this figure hides huge variability. While much of the variability in multiple paid will be down to the quality of the business and the category in which the business participates, one of the most overlooked drivers is quality of the process. With potentially tens of millions of value at stake – even on smaller transactions – there is a clear imperative to ensure the sale process follows best practice.

We have identified six best practices that strengthen the sales process and put a business in the best position to sell for a high multiple:

  1. Realistic price expectations: We have seen a large number of processes stall as a result of differing valuation expectations between buyers and sellers. Don’t launch a sale process on the assumption that a certain price can be achieved that falls above or at the extremes of realistic valuations. As you explore the sale of a business, test the likely price expectations with your advisors and if possible, have them confirm those price expectations with potential bidders. A good M&A advisor can test price levels without announcing to the world that your business is for sale.
  2. Good process design: Design your processes with careful consideration into what kind of process will best suit your business and the likely bidders for the business. Consider how broad a process you will run. At one end of the spectrum is a competitive auction with a broad group of participants, whilst at the other is an exclusive process – each route has its merit.
  3. Launch a sale process when ready: It cannot be stressed enough how important good preparation is for any disposal process; rushing into a process without being ready is a recipe to destroy value.
  4. Credible business plans: We have all learnt to be sceptical of hockey sticks. Sensible plans grounded in reality and with data to support are more persuasive and will play a critical role in any sales process. As much as there may be a temptation to present an ambitious plan, any disappointment to the forecast during the process can seriously undermine confidence in the business and potentially more importantly, management credibility.
  5. Appropriately resourcing the project: Selling a business is enormously time consuming, especially if you plan to run an auction with a wide field of bidders; recognise that this has consequences for the project management resource. Not resourcing the project appropriately will have consequences for the sale or your base business or both
  6. Prepared and aligned management: Management should never be an afterthought in a sale process – they are the ones that will sell the business for you. Make sure they are prepared and aligned – many management teams will not have been through an M&A process before, they need to understand what their role in the process is and what is expected of them.

At Food Strategy Associates we provide more commercial and operational due diligence support in UK food than anyone else1. With services spanning Growth Strategy, Performance Improvement and M&A support, and with deep expertise in the UK food industry, we are perfectly placed to advise those looking to execute a transaction. If you’d like to learn more, get in touch with us via our website, email, or call 07810 756957.

1MergerMarket volume of deals over the last three years