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Food, Beverage & Agribusiness

Industry Overview

The food, beverage and agribusiness industry includes producers, processors, distributors, wholesalers, retailers and food service businesses dealing with edible food items and beverages. The food service industry is in its mature stage and exhibits steadily growing demand. In Canada, the seafood, meat and dairy processing industry is heavily regulated due to the potential risks of contamination and adulteration. Regulation is tight during initial stages of manufacturing and processing and eases along the way as it reaches retailers.

The food, beverage, and agribusiness industries are defensive and experience low volatility during recessionary periods. Rising awareness regarding health conditions has triggered a shift in attitudes towards organic, locally sourced and healthier specialty foods. In addition, immigration continues to fuel demand for ethnic, halal and kosher foods. This trend will continue in the future and companies with a focus on healthy foods and healthier food alternatives will grow at a faster rate compared to the industry median.

The food and agribusiness industries, just like the consumer retail industry, are driven by factors that alter the price of raw materials and consumer spending habits. More specifically, the food, beverage, and agribusiness industries depend on the agricultural price index, consumer confidence, consumer spending, and commodity prices.

Industry Drivers

Farm Product Price Index

The FPPI measures the monthly changes in prices received by farmers from sale of agricultural products. Increases in this price are directly translated onto customers at all stages of the food and beverage supply chain, and as a result, an increase in this index would lead to a direct increase in industry profits.

Consumer Confidence

Consumer confidence is an indicator of the future spending and saving patterns of individuals. When consumer confidence is higher, spending typically increases, which in turn would lead to greater spending on essential food items as well as non-discretionary food purchases, leading to across the board increases in demand.

Disposable Income

Measured as the surplus income available to households and individuals after essential expenditures, increases in disposable income would have direct increases in demand from industry players, especially downstream retailers and manufacturers of food such as restaurants and take-out stores, as consumers have more resources available to enjoy recreational food and beverage consumption.

Commodity Prices

Commodities such as oil and gas are essential to the food, beverage, and agribusiness industry, as raw commodities are essential in production, procurement, and sale of industry outputs. As a result, higher commodity prices would be passed on to the customer, resulting in increased profitability for the industry as a whole.

Recent Food, Beverage, and Agribusiness Advisory Mandates

Selling a Food, Beverage, and Agribusiness Company

The food manufacturing and agribusiness industry is characterized by low barriers to entry and high competition. The industry is defensive and outperforms other discretionary consumer industry verticals in recessions due to the stable demand for staple food and grocery items. Often the highly competitive nature and low profitability of the industry can make it a challenge to sell such companies. As Canada’s leading private market M&A Advisory firm Beacon understands that selling a business is an important decision. A dedicated business owner not only seeks to extract maximum value from the sale of a business but also seeks to sell the business to a competent buyer who can continue the company’s legacy. Beacon has worked on over 100 valuation and M&A advisory mandates in the food and agribusiness industry, bringing extensive experience in deal negotiation to the table. Our experienced advisory team will assist your business in navigating the entire sell-side M&A process.

As an entrepreneur or business owner who is exploring a potential sale, it is important to understand some key factors specific to the food manufacturing and agribusiness industry that might impact the likelihood of a potential sale. These are factors that determine business attractiveness for potential buyers and investors.

Food Safety Licenses and Sanitation – Companies in this industry must be compliant with the appropriate food safety regulations such as the HACCP, OMAFRA or other health safety measures. In order to comply with these health standards, companies must have processes in place to sanitize the production facility on a regular basis. A company that is compliant with appropriate safety standards has a higher likelihood of getting acquired.

Logistics – For the food manufacturing and agribusiness, having proper logistics from sourcing to delivery is important due to the perishable nature of goods. When dealing with dairy and meat products, companies must ensure that the entire logistics is cold chain to reduce risk of contamination or spoilage. Inefficient supply chains in these industries can not only lead to wastage due to spoilage but also add liability risks if it creates a health risk for consumers.

Product Portfolio – Given that the industry is so competitive, food manufacturers can differentiate themselves from competitors by offering a variety of high-quality products that cater to multiple demographics across various ethnicities. Successful companies in the industry offer Halal, Kosher, Dairy free and gluten free menu items to cater to niche markets. In addition, the quality of the product and nutritional content further allows companies to successfully penetrate a larger market and generate sales growth. Companies that have a strong product portfolio and pipeline are more attractive to strategic and financial buyers due to growth opportunities.

Automation and Capex – Companies that have successfully automated their manufacturing process can successfully reduce labor overhead and increase margins. In addition, such companies rely less on ownership or skilled labor, making it easy to transfer ownership without hampering sales or profitability. Companies that have invested in automated processes are likely to sell at a premium for this reason. In addition, due to the reduced risk of contamination, such facilities can be safer than those that are labor intensive.

With 40 years of combined experience serving businesses within Toronto, Ontario, and abroad, the Beacon transaction team has extensive knowledge and experience successfully working for several automotive companies from a variety of industries. Whether it be a valuation or sale, our team can provide expertise and resources found only at larger corporations, paired with the personalized touch of our M&A Advisory team. Contact us today to get in touch with one of our advisors.