8 Tips for Maximizing the Sale of Your Food and Beverage Business

Deciding to sell your private food and beverage company can be a life-changing step. Sellers of these companies are often entrepreneurs who have spent years building a successful business but have little to no experience with selling one.

Below are eight steps to ensure a more efficient and effective sale process.

1. Hire an M&A Advisor

While occasionally a potential buyer will approach a seller without the assistance of an M&A advisor, this is rare, and most sellers benefit greatly from hiring an M&A advisor to help them market and sell their business. An M&A advisor will manage the transaction process from start to finish and ensure you maximize the value received for the sale of your business. For many sellers, this transaction will be the largest and most significant of their lives, given the effort and sacrifice required to build the business into what it is today. Therefore, it is crucial to hire an advisor you can trust to act with competence and integrity. In deciding who to hire, sellers should investigate an M&A advisor’s credentials and track record for completing similar deals in the food and beverage (F&B) industry.

2. Retain the Right Legal Counsel

Sellers of a business should also carefully select the legal counsel they will retain to guide them through the sale process and help negotiate the final agreements. Law firms have different levels of M&A experience, and you should engage a firm that regularly works on sell-side deals in the F&B industry. It is important to carefully evaluate your options because the legal counsel you choose will have a significant impact on the direction, timeline and outcome of the transaction. We recommend that sellers:

• Ask colleagues and other contacts (including your M&A advisor) for references
• Consider whether the recommended firms have the right specialist groups to advise on all aspects of the transaction
• Set up meetings to discuss each firm’s working style, relevant experience and F&B industry expertise

3. Assemble Your Internal Deal Team

To minimize the stress of the transaction process on management and employees, sellers often wish to keep the potential sale confidential. That said, the sale process can demand a significant amount of time and attention, so sellers should put together an internal team that can provide the requisite time commitment, has sufficient knowledge of the business, and can be trusted to maintain the confidentiality of the potential transaction. If necessary or desired, deal teams may be promised “stay” or “closing” bonuses payable on completion of the sale as an extra incentive.

4. Review Your Corporate Records

Private companies’ corporate records and commercial contracts are often not maintained with quite the same level of diligence as those of public companies. While this is common and understandable, ensuring that your corporate records and commercial contracts are in good shape (e.g., all annual filings have been made, all customer and supplier contracts have been signed and properly renewed) has various benefits, including: (i) building trust with potential buyers by signalling that your business is “sale-ready,” (ii) avoiding increased costs during the diligence process, and (iii) increasing the likelihood of a smooth and efficient sale process.

5. Consider the Regulatory Context

In Canada, F&B businesses can be subject to regulatory oversight by various governing bodies, including the Canadian Food Inspection Agency and Health Canada. A potential buyer and its advisors will want to conduct thorough diligence on the current and historic compliance of your business with applicable regulatory requirements. For instance, if your business involves consumer packaged goods, a buyer will want to gauge your compliance with packaging and labelling laws (including requirements specific to each product category). A buyer will also want to ensure you have all of the required product and facility-specific licences (such as a Safe Food for Canadians Act licence) and want to know about your inspection and enforcement history (including any notices of violation, recalls and product seizures). Depending on the transaction structure, certain licences may not be transferable, and the potential buyer may need to apply for new licences.

6. Protect Intellectual Property

In the F&B industry, a business’s brand is one of its most critical assets. To protect the value of this asset and maximize sale proceeds, sellers should ensure that intellectual property (IP) has been appropriately registered in the name of the target entity (and not in the name of individual sellers or employees) and that any recipes used in the operation of the business have been protected as trade secrets. It is also wise to review your agreements to ensure they protect the confidentiality of the target’s trade secrets and ownership of its IP. If they do not, consult with legal counsel about having employees sign confidentiality and IP assignment agreements before the sale. You should also consider establishing any company policies not already in place to address: (i) the protection of company IP and trade secrets, and (ii) the monitoring and identification of other companies’ infringement of the business’s valuable IP.

7. Investigate Potential Buyers

Your advisors should work diligently to include as much protection as reasonably possible for you in the deal documents, but it is still important that you trust the buyer, especially if you will remain with the business for any period of time post-closing. Ask your advisors if they have experience working with the potential buyer or knowledge of the potential buyer’s reputation in the market. For instance, it will be helpful to know whether the buyer has previously acquired any F&B businesses and, if so, whether those acquisitions were successful. You may also consider taking the following steps:

• Spend time with the potential buyer’s management to confirm whether you could have an amicable working relationship
• Communicate your objectives clearly with the potential buyer, and speak up right away if anything changes during the process
• Ask plenty of questions, such as what the potential buyer has in mind for your role and responsibilities after the sale

8. Take Care With Restrictive Covenants

Almost all M&A transactions will involve the negotiation of “restrictive covenants” that limit what a seller can do following closing. Specifically, these covenants often prevent the seller from competing with the business it just sold, or hiring the business’s employees, for a set period of time and in a set geographic area post-closing. As these clauses can be heavily negotiated, it is important that you clearly communicate your post-closing expectations with your advisors so that they can advocate for you accordingly.

For more information, please contact the authors or any member of our Food, Beverage & Agribusiness group.