Trends in Food Manufacturing

Building SuccessfulEmployee

RelationshipsA Cornerstone to Fraud Prevention

and Risk Management



and Risk Management

Trends in Food Manufacturing

Trends in Food Manufacturing• Current Financial Trends

•Mergers and Acquisition Activity

• Preparing for Business Transition – Buy, Sell, Merger

Introductions

Kurt Trimarchi• Managing Partner• CPA• [email protected]

Michael Hoffner• Partner• CPA• [email protected]

Janice Snyder• Partner• CPA• [email protected]

David Blain• Partner• CPA• [email protected]

Food Manufacturing – Economic Overview• General Trends in Revenue and Profitability• Significant influences:• Per Capita Income• Consumer Trends

• Industry Projections

Overview• Session intended to cover broad trends and projections• A little bit for many, minimal detail for most due to diversity of audience –

if you would like additional industry-specific information, please ask.• Your presenter is an accountant and a business advisor, not an economist

• Sources of Data:• IBISWorld Industry Analysis• Sageworks - ProfitCents Industry / Company Financial Data• USDA, IMF and Bureau of Economic Analysis

General Performance Trends• Revenue Growth

• Still growing – but at a softened pace• Average Sales Growth for Included Companies *

Trailing 12 Months 2015 2014 Last 5 Yrs Avg Animal processing: 2.44% 4.37% 9.36% 5.81%Bakeries / Bread: 6.71% 5.34% 11.61% 11.41%Snack Food: 2.17% 3.19% 9.88% 7.86%Frozen Food: 22.25% 14.75% 13.04% 10.58%Fruit/Vegetable Canning 1.96% -0.17% 9.62% 6.84%Confectionary 10.80% 8.37% 16.65% 11.88%

* Source: Sageworks / Profitcents Industry Data

General Performance Trends• Profitability

• Depressed commodity environment = margin stability, however rising SG&A keeping profits from growing significantly• Average Net Profit Margin for Included Companies *

Trailing 12 Months 2015 2014 Last 5 Yrs Avg Animal processing: 5.84% 5.46% 3.65% 4.06%Bakeries / Bread: -2.98% 2.51% 2.74% 3.96%Snack Food: 1.09% 0.01% 3.24% 3.71%Frozen Food: 7.92% 7.65% 4.94% 8.12%Fruit/Vegetable Canning 6.73% 6.82% 6.51% 5.51%Confectionary 4.21% 4.88% 4.93% 5.49%

* Source: Sageworks / Profitcents Industry Data

Per Capita Disposable Income• Per Capita Disposable Income expected to increase steadily through

2020.• Increased shift towards perceived ‘premium’ products, and willingness of

consumer to move upstream• Opportunity for new entrants into market with unique products at a higher

price point, and challenge traditional operators• Continued pressure on large producers to retain existing costumers for legacy

products/brands• Potential proliferation of smaller niche-focused producers likely results in

increased M&A opportunity in coming years

The Consumer’s Focus• Consumer Focus on Health / Ingredients • Bakeries / Bread:

• Shift in preference to premium offerings and nutritional considerations has resulted in strong growth in artisan style, specialty grain and other niche offerings, with falling volumes for major commercial bakeries traditional bread offerings.

• Animal Processing:• Consumption somewhat stagnate, pricing growth has driven revenue. Focus on choice

cuts / lean has increased in tandem with increased disposable income• Snack Food:

• Shift in preference to health-focused alternatives to traditional products expected to continue (low sodium, gluten free, reduced fat, baked vs. fried, etc.). Innovation heavily focused in this area, with new ingredients being introduced.

The Consumer’s Focus• Consumer Focus on Health / Ingredients• Frozen Food:

• Perception of Fresh as more favorable than Frozen has challenged growth in this sector – operators have focused on new product introduction with healthier, more nutritious options

• Continued challenges faced as fast food providers focus on healthier menu offerings• Further investment necessary in marketing to appeal to the health-conscious consumer

• Fruit / Vegetable Canning:• Continued challenges in market share for core products as trends shift to new product

introductions with perceived higher nutritional value.• New products (including organic) have sustained demand for the sector, but offset by

limited successes in reformulating existing products to increase perceived nutritional value.

Industry Projections*• Animal Processing:

• Industry revenue growth: projected to average 0.5% over next 5 years, growing to $230.6 billion by 2021

• Further vertical integration expected to reduce exposure to unpredictable weather / disease events

• Bakeries / Bread:• Industry revenue growth: projected to average 0.3% annually over next 5 years,

growing to $40.8 billion by 2021. • Fluctuating input prices (wheat, sugar, dairy) have made managing profitability difficult

to manage – focus is trending towards investments in equipment, processes and technology to decrease costs.

*Source: IBISWorld Industry Snapshot

Industry Projections*• Snack Food:

• Industry revenue growth: projected to average 0.9% annually over next 5 years, growing to $39.8 billion by 2021.

• New entrants into the market will continue to challenge established operators with innovative and unexpected products, offered at a premium.

• Frozen Food:• Industry revenue growth: projected to average 0.7% annually over next 5 years,

growing to $33.9 billion by 2021. • Rising cost and stagnant demand have lead to greater investment in machinery and

process improvement, as well as consolidation of smaller producers into larger entities via strategic acquisition.


Industry Projections*• Fruit / Vegetable Canning:

• Industry revenue growth: projected to average 2.4 % annually over next 5 years, growing to $46.8 billion by 2021.

• Increased development of health-focused premium products expected to drive higher margins.

• Confectionary:• Industry revenue growth: projected to average 1.1% annually over next 5 years,

growing to $8.8 billion by 2021. • Demand influenced in part by (a) expanded sugar free and low-cal options, and (b)

operator focus on products appealing to aging demographic (granolas, etc.)



Merger and Acquisition Activity

Merger and Acquisition ActivityKey considerations:• Seller favorable environment• Multiples remain strong• Demand for growth• Low borrowing costs• Competition from non-strategic buyers (private equity)• Branded products trading at a premium • Specialty products (craft beers, coffee) are in high demand

Industry Specific FactorsKey considerations:• Low growth in mature markets• Pressure on margins• Consumer changes• Changing retail landscape• Competition from small/nimble companies• Operational efficiencies• Food Safety Regulations

Merger and Acquisition ActivityRecent US F&B Median Transaction Multiples (Enterprise Value/EBITDA)

Description 2010-2015 Low

2010-2015 High

Q1 2016

Baked/Snack Foods 9.1x 14.4x 14.0x

Beverage 10.9x 17.0x 16.5x

Dairy 9.7x 13.8x 13.1x

Distribution 7.2x 11.6x 9.7x

Ingredients/Flavorings 9.4x 14.1x 14.5x

Packaged/Manufactured Foods 9.4x 12.6x 13.0x

Protein 4.9x 9.0x 6.5x

Retail 5.6x 7.5x 6.9x

Merger and Acquisition Activity•What types of structures are being utilized?

• Are there specific tax considerations or trends?

•What sources of funding are being utilized?

Pre-Sale ConsiderationsThings to Consider Before you Sell:• Quality of Financial Reporting

• Quality of Earnings

• Quality of Personnel

• Tax Issues


Preparing for Business Transition – Buy, Sell, Merger

Professionals• Consider the Use of Transaction Professionals Before Starting this

Process• Experience and knowledge in the industry• Successful transactions completed – both buy and sell side• Professional designations – CPA, CVA, CM&AA

• Discuss with Other Professionals Experienced in the Industry• Banks and financial professionals• Insurance agents and brokers• Legal professionals seasoned in the industry

Buy-Side Considerations•What Are You Trying to Accomplish?• Increased Market Share• Regional• National• International

• Strategic Product Buy• Product that compliments current lines• New product line

• Reduce Market Competition

Buy-Side Considerations• What Can the Balance Sheet Absorb?• Determine extent of balance sheet leverage available

• How will a Transaction be Financed?• Bank Debt• Capital investors• Shareholder financing

• Ensure that activities will not impact the performance of current business operations.

Sell-Side Considerations• Know Your Financial Statements

• Balance Sheet• Debt to Equity, Current Ratio, other business specific ratios

• Income Statement• EBITDA/EBITA, Free Cash Flow• Normalized results

• Consider Higher Level of Assurance• Audit or Review if not already completed• Multiple periods

• Assess Operational Efficiency• LEAN/Six Sigma• Management and personnel• Equipment

Sell-Side Considerations• Develop Financial Projections• New business initiatives• Organic growth• Operational structure• Capital needs

• Inventory Specialized Assets• Patents• Customer lists• Specialized and internally developed manufacturing processes

Sell-Side Considerations• Consider appraisal of equipment• Research market for like kind and recent acquisition data To

determine market multiples and ranges of value• IBIS• RMA• Food Manufacturing Organizations

• Complete Assessment of Range of Value on Business• Asset, Income and Market Approaches

• Prepare Confidential Memorandum to go to Market

Questions?







and Risk Management

Questions?





Date post:	16-Apr-2017
Category:	Business
Upload:	mckonly-asbury-llp
View:	120 times
Download:	0 times