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Phone: 212.260.2743

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Driving Value in a Branded Food Business


Driving Value in a Branded Food Business

We know from our work advising sellers and buyers of businesses in the food industry that there are certain characteristics that all buyers look for in an attractive acquisition target. Evaluating a brand’s strengths and weaknesses through the lens of a potential investor can help a business leader create a business that ultimately earns a premium valuation. We have found that focus, brand image, margins, growth, differentiated presentation and management are the factors that really drive valuation.

1. Targeted Products: Most successful brands focus on a core product before moving into other categories. This allows a brand to optimize product/market fit and accelerate growth to gain more familiarity before moving into other categories. Buyers are usually focused on the performance of the brand’s core SKUs, so this approach eliminates the noise around the brand and makes the investment thesis more compelling. A roadmap to scale the brand either in or out of the core category will also communicate to potential buyers that there is a broader market opportunity.

2. Brand Image: Consumers are more aware and sensitive to the brand’s character than ever before. Social media has enhanced this increased connectivity between the brand and the consumer. Consumer spending is increasingly driven by a brand’s sustainability practices, ingredients (non-GMO, preservative-free, etc.), story and community involvement. Brands that connect with consumers’ values will command a loyal following with those who feel passionately about the brand. A brand with an authentic and unique founding story and purpose will also help foster a passionate customer base and strong brand image.

3. Margin Profile: Potential buyers will look closely at profitability. Analyzing margins gives a window into the operational efficiency, scalability, and management competency. Buyers want to ensure that they can increase sales while maintaining healthy margins. Brands that can show clear drivers of earnings growth will better convince buyers that they deserve a premium value. M&A transactions with smaller brands will often pay out a portion of the consideration contingent upon reaching a certain threshold of profitability based on gross, operating, or EBITDA margins.

4. Sales Growth: As an alternative to organic growth, many legacy food industry players will simply acquire emerging brands with strong growth profiles. Instead of investing internally to create a new product, they can purchase a smaller but growing brand with an established market position. A brand with high growth will likely garner interest from multiple buyers and will command a much higher valuation multiple. Along with historical growth and innovation, a brand must demonstrate a roadmap to continued growth and an ability to further scale .

5. Point of Difference: Successful brands generally have meaningful differentiation from the other products in their category. For example:

  • Halo Top offers ice cream containing significantly fewer calories than traditional products as it contains natural sugar substitutes and less cream
  • RX Bar has emerged as a category leader by using simple ingredients in its bars and snacks, and communicates this theme in its packaging
  • Good Culture is rebranding cottage cheese as a single serve product, appealing to a new generation of consumers

By providing a clear point of difference that appeals to consumers, brands can better gain and defend market share. The simpler the messaging regarding these points of difference, the better.

Strong Management Team: A strong management team is critical to closing a deal and achieving a high valuation. The management team is responsible for communicating the vision of the brand to potential acquirors and convincing them of the brand’s long-term success under the buyer’s ownership. And, continuity of the brand is an important attribute that a high quality existing management team is willing to continue to shepherd the business under new ownership.

Although this is not an exhaustive list - focus, brand image, margins, growth, differentiation and leadership are some of the most important characteristics of a branded food company that potential acquirers will consider. Taking the measure of a brand’s position in the context of these six themes can help form a picture of brand valuation.




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ADDRESS

10 East 40th Street
Suite 3210
New York, NY 10016

CONTACT

Phone: 212.260.2743
Fax: 212.260.2748