Beyond Topline and Turnover: Branded Food Investors Focus-In on Margins
Cascadia’s Food, Beverage, and Agribusiness practice group has been very active since the pandemic began—as we were hired on nearly $1.4B in new assignments, measured in total enterprise value, since March. The new transactions span branded, co-manufacturing, ingredient, and agricultural input projects.
In the branded food world, we are seeing a sea change in the way buyers evaluate opportunities. Before 2019, buyers measured a brand by its topline growth and velocity or turnover at retailers. Now, both private equity and strategic buyers are looking closely at gross margins and EBITDA margins. We continue to see the branded players in the food and beverage space perform well—both financially and with premium trading multiples. In general, companies in the branded food category are trading at two to three turns (enterprise values to EBITDA) versus historic norms, and in some cases well beyond these premiums.
Food companies have seen significant attention in the public equity markets, with most companies seeing a substantial boost from “eating at home” trends driven by COVID precautions. These strong tailwinds from consumer demand have also informed the M&A activity for branded products in the middle market. Notable transactions over the last seven months include Vital Protein’s sale to Nestle, Liquid IV’s sale to Unilever, and even the transaction announced this week in which J.M. Smucker is divesting its Crisco brand—selling the business to B&G Foods. Food continues to be a high-growth category.
We are seeing increasing interest in the plant-based categories of non-dairy, plant-based snacks, protein substitutes, and plant-based superfoods. We are in the market with a food 2.0 plant-snack business and one of the iconic brands in the packaged vegan foods segment. Earlier this year, we completed an assignment for one of the original plant-based ice cream businesses.
In the near-term, the major keys to an M&A sale process for branded companies will be size, scale, and margins. Approximately $20-30 million or more in revenue will be expected for a branded food exit. We are seeing success with companies that have 30-40% gross margins or better, and buyers will generally expect profitability in this transaction environment. The farther the company is on the EBITDA margin curve (approaching 10% or better), the more likely they are to have a successful outcome upon a sale process.
What’s Your Why?
I have the pleasure of working with health and wellness and values-integrated companies, which are led by some of the most passionate people in the food and agribusiness industries. I am inspired by the experience of working with clients who are innovators and forward-thinkers. At the end of the day, nothing is more gratifying than a client who is pleased with the results of a transaction—both from a financial and personal experience perspective.
About George Sent, Managing Director, Food, Beverage & Agribusiness
George is one of the leading investment bankers in Cascadia’s Food, Beverage & Agribusiness practice with more than fifteen years of concentrated industry experience. He has deep transactional expertise in mergers & acquisitions, private equity capital raises, and strategic board advisory services, extended to both public and private companies. Prior to Cascadia Capital, George was an investment banker with Lazard and Goldman Sachs. He also spent a number of years as a corporate executive with the JM Smucker Company, where he oversaw the Company’s Corporate Finance and Investor Relations groups.