In an industry as massive and dynamic as food and beverage, it’s only natural that some businesses look to mergers and acquisitions as a means for growth. Even amidst the pandemic, several major deals occurred in 2020—including Pepsi’s $3.85 billion purchase of Rockstar Energy—and there’s no reason to believe that the deals will slow as organizations continue to jockey for position in the crowded, competitive marketplaces.
What should you know about mergers and acquisitions (M&A) as a food and beverage professional? First, there is an interesting pattern of stratification that these transactions create, as we see smaller companies focused on carving out their own space in the market on the one hand, and giants of the sector making high-profile purchases on the other.
There aren’t many businesses that fall between those two extremes, and that’s because as food and beverage organizations grow beyond their initial stages, there is a tendency for leadership to either sell for a profit or acquire another similarly sized company and thereby jump into the higher tier.
Where your business is in this ecosystem will inform your approach to mergers and acquisitions. And even if your company has no immediate plans to expand in this way, keeping your eye on several emerging trends on this front is prudent to remain prepared as the industry continues to evolve in the future.
Perhaps the most obvious trend in food and beverage M&A is that the dip in transactions seen in the second quarter of 2020 was quickly reversed, with more than 130 deals closing in the second half of the year. As a “new normal” set in and vaccines began to roll out, companies clearly became increasingly ready to pull the trigger on major acquisitions.
Also, while strategic buyers—in this instance, larger food and beverage enterprises purchasing smaller organizations that can be incorporated in their business plans—are still the most common, financial buyers still accounted for 17% of M&A transactions in the industry. Thus, private equity purchasers who are looking to buy companies and hold them as investments are still active in the market, even if they aren’t involved in the majority of deals.
Another trend that has become increasingly apparent is the popularity of innovative niche brands for acquisition by bigger businesses. Specifically, companies that produce plant-based foods or products that are otherwise more healthy and sustainable are considered more attractive and likely to lead to growth.
Finally, looking at those sub-sectors of food and beverage that are seeing more M&A activity than in the past, snacks and prepared packaged foods were more in demand due to consumers staying home more often, and there was a subsequent increase in deals for manufacturers of those products. Next to see a spike might be seafood, as their offerings can suit people looking to cut back on red meat.
Should your business become part of an M&A deal, there are some common predicaments to be aware of as your company adjusts to the new organizational structure. A crucial facet of operations is technology, and very frequently the disparate parties involved in these transactions don’t align on this front.
First, there’s the scenario in which two or more businesses coming together use different enterprise resource planning (ERP) systems. The best approach in these circumstances would be to critically examine the needs of each entity and then select the solution from among those already present that best suits all of the organizations’ needs.
Then, there are situations in which a single larger company acquires a smaller business and mandates that the newly purchased organization switches to their own platform. This will undoubtedly lead to new practices in the smaller company, and whether or not the acquiring company’s system can support the acquired needs to be evaluated—customizations to accommodate should be avoided if possible, but might be necessary.
One last possibility is that the businesses involved decided to stay on separate ERP systems but instead merge only their financial databases. This is not an ideal situation, as multiple facilities running on different systems won’t allow for full visibility, flexibility and agility.
Other considerations outside the realm of technology are the differences between the various companies in terms of number of facilities and geographical areas. And on the people side, there will be adjustments, as well as inevitable resistance to change, so dedicating a team to making sure the adoption goes smoothly would be a wise decision.
Depending upon the dynamics of the deal, your business may not have full control over how a merger or acquisition proceeds. As discussed above, mismatches in technology are common, but cloud-based solutions like Aptean Food & Beverage ERP can make the process of integration much less painful.
Because these systems don’t require on-premise hardware, no lengthy physical installation is necessary, and new acquisitions can be brought up to speed remotely and with minimal disruption. They also provide greater visibility into the entirety of the new combined enterprise, allowing decision-makers to act with better information and a more holistic view.
At a higher level, proper attention must be paid to change management. There will be training, new policies and heavy involvement of the human resources departments of all involved entities, but at the heart of it all should be a focus on excellent two-way communication and making the transition as simple and natural as possible for your employees. Keep in mind that any difficulties they face as a result of the change could have severe negative impacts on your operations.
Whether or not a food and beverage M&A transaction is on the horizon for your business, you want to be prepared for the future in this changing industry landscape. Aptean has decades of experience in the food and beverage industries and has the solutions to future-proof your operations, so contact us today to hear about our purpose-built offerings.