"Due to the current mindset of the active acquirers, a seller should expect a deal to take longer to consummate than it normally does, if they are to obtain an attractive deal."
The overall consolidation in this industry during the past five to seven years, which has reduced the number of acquirers bidding for prospective sellers.
Certain major players that have historically been very active in the acquisition market have internal problems, which have reduced their acquisition presence.
Many of the industry's major players are suffering from relatively weak stock prices that have diminished their appetite for growing through acquisition.
The reduction of active major acquirers has tended to make the remaining ones very demanding about deal structure and terms, including the reps, warranties and indemnifications of the transaction. Despite my broad-based acquisition practice, the deal structure and terms demanded by the active acquirers in the foodservice distribution industry are more stringent and difficult for sellers than in any industry that I serve.
The active acquirers confidently expect to obtain reps, warranties and indemnifications that, in my opinion, are very unfair to sellers and which puts them in a very precarious post-closing position. However, the active major acquirers have become accustomed to getting this type of terms. It takes a powerful and patient negotiator to obtain a protective deal structure and reasonable deal terms for a seller.
In the foodservice industry, if a seller is to obtain an equitable deal structure and fair terms, the company must be willing to push a deal to its breaking point, possibly even on numerous occasions. Sellers willing to take this aggressive position must realize that their strong actions could break the deal. They must be able to live with that possibility and its consequences, as this is the only approach that will obtain a fair deal for a seller in today's environment. For more information on general negotiating strategy, please refer to my article, titled, "Selling Your Company - Removing The Obstacles To Success", which appeared in the April 29 issue of ID Report .
Due to the current mindset of the active acquirers, a seller should expect a deal to take longer to consummate than it normally does, if they are to obtain an attractive deal. This is attributable to the strong, secure and demanding position that acquirers feel they possess. For the deal to be equitable, the seller must exert much time, effort and skill to move the acquirer from their initial position. However, a properly negotiated deal, even in today's environment, can produce a premium price with protective deal terms for the seller. My experience is that the seller must have extreme patience, the utmost in determination, a thorough understanding of his or her company's strengths, the value of its niche to an acquirer, and considerable experience in the acquisition process, if they are to achieve the aforementioned type of deal.
In summary, only a few major active acquirers are pursuing foodservice distributorship acquisitions at the current time. They are demanding stringent and somewhat punitive deal structures and terms. However due to the strength of the overall acquisition market, deal pricing in the foodservice industry is currently strong despite industry-specific conditions that strongly favor the acquirers. However, sellers that utilize the proper negotiating strategy executed with patience, determination, and sophistication are still able to obtain premium-priced deals in the current market.
In the past six months, ID Access reported the following acquisitions in the foodservice industry:
Bunzl Distribution, Inc., St. Louis - Maintenance Depot, Inc.;
Saval Foods Corp., Elkridge, MD - Auth Sausage Co.;
Sysco Corp., Houston - Facciola Meat Co. and Royalty Foods, Inc.;
Cargill, Minneapolis - Integrated Bakery Resources;
Evans Foodservice, Inc., Swartz Creek, MI - Otto W. Leibold & Co.;
Clark National, Inc., Elk Grove Village, IL, - Regal Foodservice Equipment & Supplies, Inc.;
Vistar Corp., Denver - Roma Food Enterprises, Inc.; and Vend Source's Denver operations;
Best Brands, Eagen, MN - Multifoods, Inc.;
Ben E. Keith, Fort Worth, Texas - F&E Foodservice. Editor.
George Spilka, a regular contributor to ID Access, is president of George Spilka and Associates, a Pittsburgh-based merger and acquisition consulting firm that specializes in middle market, closely-held corporations. His website is located at www.georgespilka.com. Contact him by phone at (412) 486-8189, or e-mail: email@example.com.