Food & Drink exits: Preparing for today’s M&A market

So, what do buyers look for?

Every business is different and will have its own strengths. But if the fundamentals are missing, value can quickly fall away.

In the current market, prospective buyers will focus on whether a business can:

1. Offer sustainable growth, such as through long-term retail relationships, expanding into new markets and achieving consistent EBITDA growth over several years;
2. Demonstrate operational resilience, by having long-term supply agreements with a diversified supplier base, a broad and loyal customer base and a strong management team; and
3. Deliver a clear platform for value creation, through launching new products, increasing presence within existing sales channels, exploring strategic acquisitions and improving operational efficiencies.

How can a business prepare?

Buyers are increasingly rigorous in due diligence. They scrutinise not only financial performance, but also the risks and opportunities that could affect future value.

There is no universal checklist for exit preparation. Every business is different, and the issues that affect value or deal execution will vary. But some areas come up time and again in buyer due diligence. These are sensible places to start.

Corporate housekeeping and group structure: businesses should make sure their statutory books and registers are complete and up to date, and that any historic share transactions, such as allotments and transfers, have been properly authorised and documented. They should also review their group structure and identify any unnecessary complexity that may need to be simplified ahead of an exit.

Intellectual property: intellectual property is often one of the most valuable assets in a food & drink business. Businesses should review whether they have properly protected their brands and products through registered trade marks and other intellectual property rights. They should also consider whether there is any risk that they are infringing third-party rights, or whether their own IP could be vulnerable to challenge from competitors.

Commercial contracts: businesses should review contracts with key customers and suppliers to make sure arrangements are properly documented and remain enforceable. They should also identify any contracts containing change of control provisions that could be triggered on exit and require counterparty consent.

Employment matters: employment contracts should be reviewed to confirm they are fit for purpose and compliant with applicable legislation, particularly for senior management and key employees. Businesses should also identify workforce-related risks, such as the potential misclassification of contractors, incorrect holiday pay calculations or the presence of any defined benefit pension schemes, which can give rise to significant liabilities.

Regulatory compliance and litigation: businesses should identify any food safety incidents, product recalls or regulatory breaches that could expose them to financial or reputational harm. They should also review compliance with legal obligations, including packaging and recycling requirements, producer responsibility regulations, data protection, health and safety, and anti-bribery legislation. Any ongoing, threatened or historic disputes, investigations or enforcement actions should be identified and carefully managed.

Property: businesses should identify their property arrangements and review whether any leases are on appropriate terms, with enough duration to support ongoing operations and growth. They should also consider liabilities across the property portfolio, including outstanding repair obligations and potential dilapidations claims that could crystallise on lease expiry or termination.

Effective exit planning is not about eliminating every risk. It is about understanding where issues may arise and dealing with them before due diligence starts. A well-prepared business is better positioned to achieve a stronger valuation and attract a broader pool of buyers.

In a nutshell, to successfully prepare for exit, businesses should:

1. Get your house in order: robust financial reporting, effective corporate governance, protected intellectual property and well-managed commercial contracts can significantly streamline due diligence and reduce transaction risk.
2. Focus on drivers of value: understand what makes the business attractive and be able to demonstrate clear opportunities for growth.
3. Plan early: start years, not months, before a planned exit.

If you are thinking about exit — whether soon or further down the line — our Corporate Team can help you identify the issues that matter, protect value and prepare with confidence.