The basics of acquisitions
By Sam GazdziakThe meat-processing industry seems to have several high-profile mergers and acquisitions each year most recently the acquisition of Pilgrim’s Pride by Brazilian processing giant JBS SA, also the parent company of JBS Swift.
Such deals aren’t the exclusive domain of the billion-dollar companies, of course. Smaller companies may decide that the acquisition of another company could help take its business to the next level. An industry veteran may look to exit the business and sell to the next generation or an independent buyer. There is a steady flow of businesses changing hands, but the actual process to acquire or sell a company can be complicated and time-consuming.
Selling a business is probably the most important transaction of a business owner’s life, says Stephen Becker, managing director of Emory & Co., an investment-banking firm located in Milwaukee. Becker, who is a former owner of Becker Food Co. Inc., says that an owner looking to make a sale should assemble a team of experts to guide him or her through the process, including an attorney, an accountant and a mergers & acquisitions expert.
“With the help of that team, establish what the goals might be for that owner in selling the company,” Becker says. “Is it to retire? Is it to take cash out of the business, or to play a lesser role in day-to-day operations? Is it to transfer business to a family member?” Once the goals are set, the owner can move forward with the process.
The next step is to do everything possible to make the business more attractive, both from a physical standpoint and a business standpoint. A new coat of paint and needed repairs to the facility would be in order. Also needed is to try and increase sales and cash flow. Becker recommends looking for “potential customers out there that you want to go after even more aggressively, to have them as part of your list of clinics.”
Everything to do with the business should be systemized and documented, as a prospective buyer will want to see that information. Employee morale, as well as relationship with customers and suppliers, also will factor into the negotiation.
“This type of planning really needs to begin one or two years in advance of the sale, so that there’s time to make adjustments and corrections,” Becker notes.
A buyer should also look at the strength of the management team as well as the company’s performance with the USDA.
“I would want to look at their customer mix,” Becker says, “to confirm that there isn’t an unusual concentration of customers in other words, that one customer doesn’t represent 60 or 70 percent of the business.”
That unusual concentration wouldn’t necessarily be a deal-breaker, but it’s something the buyer would want to know up front. The concern, Becker adds, is making sure the buyer truly gets what they think they are buying. Furthermore, Becker recommends that both a buyer and a seller have professionals who specialize in acquisitions.
“If I was the seller of a company, and I wanted to have my company sold by going through an intermediary, they would be able to accomplish additional things that I might not be able to,” he says, explaining that an expert in the field might find additional buyers.
“When somebody is selling their ‘baby’ or buying someone else’s baby, there are going to be a lot of emotions involved,” he says. “That third-party intermediary isn’t going to be handicapped or slowed down by that emotion.”