Now is a great time to sell your F&B business: Anchin

By Maggie Hennessy

- Last updated on GMT

Anchin's F&B chair, Greg Wank: “Now is a wonderful time to be a seller [for food and beverage CPGs]. There’s never been more activity in terms of mergers and acquisitions than there is right now.”
Anchin's F&B chair, Greg Wank: “Now is a wonderful time to be a seller [for food and beverage CPGs]. There’s never been more activity in terms of mergers and acquisitions than there is right now.”

Related tags: Health

Despite tight margins and even tighter competition, it’s a great time to be in the food and beverage industry—and an even better time to be a seller, according to New York accountant and advisory firm, Anchin, Block & Anchin. 

A survey Anchin conducted this spring of 65 food and beverage manufacturers, distributors, supermarket and restaurant executives found that acquisitions were ranked as the fifth biggest driver of expansion, trailing new product offerings, new sales relationships, new brands and private label. But this surprised Greg Wank, chairman of Anchin’s Food & Beverage Services Group, who presented the results during Anchin’s 8th​ annual State of the Food and Beverage Industry event last month in New York.

“Now is a wonderful time to be a seller. There’s never been more activity in terms of mergers and acquisitions than there is right now,”​ Wank told FoodNavigator-USA. “The number of potential acquirers is growing exponentially—there are more private equity, family offices and start-up funds that are all looking at consumer products, healthy living and food and beverage. Almost all the highest bidders are private equity funds.”

So what makes the natural foods channel so attractive to private equity? Wank says it’s the high growth rate potentials, as private equity funds chase aggressive annual returns—in the ballpark of 30%. “Where do you get those kinds of returns? In technology, sure. But also in food—especially healthy eating and all natural. Just look at some of the deals and even capital raises at incredible valuations lately.”

The massive influx of money coming to the food and beverage industry has unsurprisingly brought with it a tremendous need for manufacturers to raise capital and financing at all levels, because of how expensive it has become to win and keep​ shelf space. As a result, Anchin is seeing more and more lending activity, especially in middle markets.

“For these companies that have proven themselves and are building a real business in the $10 million-plus sales range, debt financing is more available to them and cheaper than equity financing. There’s a tremendous need for working capital and an increase in ways to get it,”​ Wank said.

'If you're not going to be the coconut water of choice, then you're just one of 20 others'

Indeed, profits have become increasingly elusive, even as sales are rising. A majority of companies in the food and beverage sector (74%) saw sales increases last year, while just 57% reported increased profits, the survey found. Wank attributed this in part to the fact that ingredient costs are rising faster than manufacturers are willing to raise prices, which has tightened margins considerably.

“Margins are shrinking, especially in the all-natural and healthier space,”​ Wank said. “Particularly when you talk about trendy ingredients like chia, where prices are literally doubling and tripling—it’s costing more and more to make goods, and manufacturers simply can’t raise prices fast enough to their customers.”

Although commodity/ingredient costs topped respondents’ list of concerns in the coming year, third behind financing was worry over increased competition.

“There are so many new entrants to the market all the time, and the barrier to entry is not that high,”​ Wank said. “Co-packers will do a run for you at a pretty low cost if you come up with what you think is a new chip. So there’s a constant need to innovate, and that means you have to come out with something new at least every year.”

This in and of itself is a gamble, given the sheer number of copycat products compared with the scarce few that stand head and shoulders above the crowd. “If you’re not going to be the coconut water of choice, then you’re just one of 20 others,” ​Wank added. “It’s better to always be innovating.”

All-natural denotes health; fat and calories no longer 'scary' ingredients

When it comes to consumer trends, it’s really all about the ingredients, which has translated to a shift in preference when it comes to what consumers perceive as healthful food. Nearly half (45%) of respondents in the food and beverage industry say they’re promoting new healthy products as all-natural, compared to just 6% who are touting new products as low-calorie. Other standout claims included organic (25%), gluten-free (13%) and vegan (11%).

Despite the persistent confusion surrounding the marketing term “all natural” (and its many variations), consumers continue to seek ingredients that are perceived to be as close to raw and unadulterated as possible, Wank said. “Today’s food customer is more sophisticated and concerned about ingredient labels than ever before. As an example, they care less about total calories and more about ‘where are my calories coming from?’”

The same goes for fat, as people are starting to realize fat may not be bad, depending on the source, he added.

“We’re seeing a shift toward healthier oils. I just met with a company doing coconut oils, and they can’t keep up with demand. It’s so high in fat but no one seems to care because it’s healthier than standard vegetable oil.

“It’s all about a much more educated consumer. There’s so much written about it now. Even the cover of Time magazine is telling us, ‘Go ahead and eat your butter!’ So we're seeing fat in a whole new light.”


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