March 12, 2010

Use Multiples to Value your Food Enterprise.

The long-term goal for many food start-ups is to establish a successful company and then sell the company, plant, and customers.  Large Food Corporations buy recognizable brands  that serve a specific demographic with little concern of manufacturing facilities.  Kelloggs purchased Kashi in 2000 for about 1.3 x sales.  They recognized the value of the consumers that purchased Kashi and desired having an entry into their lives with the Kashi brand.  Sales were approximately $25 million and Kashi sold for about $33 million.  If you do the math you arrive at a multiple of 1.3.  What is your food brand worth with this multiple?

The buying company generally only has interest in the consumers of your brand and the strength of category .  This is the starting point for all of the future growth activites.  The buyer will roll production into their existing and less than full capacity plants.

The following companies represent entrepreneurial start-up brands that developed a solid and secure niche that define a category.  These six companies represent strength of brand focused on their ideal consumers along with purchase price and multiple.

Recent Branded Product Company Closing Prices and Multiple Used in Acquisition

1. Tom's of Maine, purchased for $ 100 million w/ sales of $ 50 million; 2 multiple
2. Ben & Jerrys; purchased for $ 326 million w/ sales of $ 237 million; 1.3 multiple
3. Green and Black Chocolates; purchased for $20 million w/ sales of $ 22 million; 1.1 multiple
4. MilkBone Treats; purchased for $580 million w/ sales of $ 180 million; 3.2 multiple
5. Meow Mix; purchased for $ 705 million w/ sales of $ 250 million; 3 multiple
6. Kashi purchased by Kelloggs for $33 million with sales of $25 million. 1.3 multiple

The average multiple used in these brand purchases is just under a multiple of 2 x yearly Sales.

A recent survey by the Food Institute - sectors that food and beverage companies seek to divest in 2010, 43% stated manufacturing plants, 29% noted restaurants, 29% indicated retail stores and no respondents answered brands.

To wrap this up, the acquiring company purchased the brand and access to the consumers purchasing the product.  They had little to zero (closing existing plants and selling the real estate in several instances) interest in the physical assets or other resources of the acquired company.

What actions are you taking to grow your business? Send a note or comments to Tim, also follow me on Twitter and see my retail photo notebook.. I want to hear about your success!

© Tim Forrest 2010. All rights reserved
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