May 8, 2025 - Within the food and beverage industry, there has been a recent ebb and flow of merger and acquisition (M&A) activity. While many companies are looking for consolidation for a variety of reasons, high interest rates, uncertainty around the economy, and the election have caused many buyers to “wait and see”. During the first quarter of this year, optimism rose but has now declined with recent insecurity around tariffs and the impact on the economy. The prevailing sense we get from conversations with middle-market business leaders is they are looking to insulate themselves from further instability and be prepared when transaction activity picks up.

This article explains different ways food and beverage companies that are interested in M&A can prepare right now.

Tips from Recent Transactions

Push for more scale: Whereas one company may have heavily invested in their marketing or salesforce, another may have established warehousing or logistics operations that when combined, create performance synergies and savings. Focusing on single components of operations at a time will not only improve company performance but will create a valuable intangible asset in the lens of the M&A marketplace. We are seeing strategic buyers active in the market right now looking for this consolidation versus solely private equity buyers.

Creative and transferable investments are being made: Artificial intelligence integration with back-end systems is a topic of conversation, and interesting to owners as a way to offset high administrative costs and compensate for workforce shortage. It can help new employees with training and make those workers more transferable between roles and locations. Companies may also leverage key processes currently in place, such as supply chain or distribution network. We have seen that as companies work to determine how they fit into their ecosystem and utilize their key relationships, they may pursue additional partnerships to compensate for weaknesses, and as a biproduct, partnerships blossom into an offer to buy or sell the company.

Preparation is key: Leaders must enter M&A discussions with a clear understanding of their goals, the company’s true value, and the impacts. For example, beyond the numbers, what will the proposed transaction mean to the people at the company? Will they have to rely on key managers or owners, and does this fit the reasons for the transaction in the first place? Your goal is not to simply close a deal, but to close a good deal — and a profitable deal, after taxes. Some recent deals have fallen through as companies miss earnings targets because their margins have declined in the current economy. Being armed with realistic expectations and accurate information will help to avoid surprises.

Understand and limit exposure: Review areas such as tax filing exposures, legal contingencies, quality of uncollected receivables and aged inventory. If nothing else, this exploration highlights potential areas of future concern and gives a longer runway to find the right fix instead of just a quick fix.

How Citrin Cooperman Can Help

Conduct a Thorough Valuation

There are several tiers of valuation services that can be provided. Ranging from a formal value engagement with a detailed and lengthy report to a simple calculation engagement, a valuation engagement can be tailored to meet the owner’s current needs. Often, expectations have been developed without concrete support. Without this baseline, negotiations will not proceed effectively. Whatever the level of the valuation, it can give you the right starting point for a potential sale. It also offers insight into the business — if the number is substantially lower than expected, investigating the reason can help them find ways to improve the company operations.

Quality of Earnings (QoE) Report

The buyer will perform their own due diligence, likely including a QofE assessment. However, it is helpful for sellers to have all the information so they can enter into negotiations informed. While a QofE is complimentary to audited or reviewed financial statements, it is especially important if a company does not have these. The best time to do this is before the business is on the market. That way, owners can rectify any QoE findings and also be prepared with negotiation tactics to balance their position to a more favorable deal value. Once engaged, deals move quickly, and owners should have this analysis already prepared.

Scenario Planning

In many transactions we see, the sale is a key part of an individual owner’s retirement plan. It is important that they understand how and when the cash will flow after considering taxes. It’s also important that scenario modeling is completed proactively, to give sellers leverage and the ability to make informed decisions around the deal structure. If at all possible, limiting surprises post-close helps with a smooth transition on all sides.

Consolidation is Coming — Be Ready for Opportunities

If the present economic and political instability continues, we expect that many food and beverage companies may find that the valuation number they have in mind will not hold true. Timely preparedness and fact-based information drives realistic results, whether that is a well-positioned, high performing company or a smooth and (mostly!) stress free M&A process. We recommend conducting a thorough valuation and earnings assessment early in that process so you can enter those conversations informed.

Citrin Cooperman’s Food and Beverage Industry Practice is here to help your company assess and determine the most effective strategy for a potential transaction. To learn more or seek guidance, please reach out to your Citrin Cooperman advisor.