Businesses can grow organically, through partnerships and alliances, or via acquisitions. Striking the right balance between these growth strategies is challenging even in normal circumstances. In today’s unpredictable environment, achieving meaningful value creation through acquisitions is even more demanding.

In the food and beverage (F&B) industry, this challenge is intensified. Sectors like healthy snacks, distilleries, plant-based foods, quality pet food, and craft breweries are commanding increasingly high valuations. With private equity capital still readily available, competition for acquisitions is fierce, driving up multiples.

At Strategic Transactions, we advocate for careful, strategic decision-making backed by robust financial models. Our experience in 2022 has shown that acquisitions are most successful when financial modelling and strategic thinking happen in tandem.

Key Considerations for Effective Acquisition Modelling

1. Enhance Revenue Streams

When acquiring an F&B business, buyers should look beyond the current revenue. The right financial model should assess opportunities to:

  • Increase Customer Stickiness: Implement loyalty programs, personalised offers, or subscriptions to retain existing customers.
  • Cross-Sell and Upsell: Introduce complementary products or premium offerings.
  • Expand Geographically: Enter new regions or markets.
  • Target New Segments: Identify untapped customer segments with tailored marketing strategies.
  • Optimise Lead Generation: Improve marketing and sales conversion rates.

Each of these strategies requires precise modelling, including projections of customer acquisition costs and potential ROI.

2. Optimise Pricing and Margins

In an inflationary environment, businesses may hesitate to raise prices. However, a well-developed acquisition model evaluates whether the product’s value justifies higher pricing. Some key considerations include:

  • Value-Based Pricing: Align prices with the value customers derive, particularly for products that solve specific problems or offer unique benefits.
  • Price Elasticity: Understand whether demand will drop significantly with price increases.
  • Margin Expansion Opportunities: Evaluate how price optimisation can lead to greater profitability.

If the product’s price is purely a race to the bottom, reconsidering the acquisition may be prudent.

3. Calculate Synergies and Dis-Synergies

Revenue and cost synergies often drive acquisition decisions. However, accurately modelling these benefits is critical to avoid overestimating their impact.

  • Revenue Synergies: Evaluate cross-selling opportunities, product bundling, expanded market access, and reduced competition.
  • Cost Synergies: Assess potential savings through consolidated operations, increased purchasing power, and reduced overhead.
  • Dis-Synergies: Anticipate challenges such as operational disruption, loss of key employees, or brand dilution.

4. Budget for Post-Merger Integration (PMI)

A poorly executed integration can erode significant value. Your financial model should account for the real costs of merging operations, people, and systems. Be sure to consider:

  • Retention of Key Talent: Develop incentive programs to retain critical employees.
  • Cultural Integration: Align values, mission, and management styles to avoid friction.
  • Systems and Processes: Streamline and standardise operations while eliminating redundancies.

5. Model the Unquantifiable

While financial models are powerful, they cannot fully capture subjective elements like cultural fit or leadership compatibility. However, you can account for these uncertainties using:

  • Sensitivity Analysis: Test how changes in cultural alignment or management effectiveness impact value.
  • Scenario Planning: Develop multiple outcomes to understand best- and worst-case scenarios.

6. Track and Adjust

The value of a financial model doesn’t end with the deal closure. Ensure the model remains a living document, comparing projections with actual results. Designate responsible team members to:

  • Monitor Performance: Regularly update financials and compare against initial expectations.
  • Identify Gaps: Quickly recognise when assumptions prove inaccurate.
  • Course-Correct: Implement necessary changes to stay aligned with acquisition goals.

Final Thoughts

At Strategic Transactions, we integrate financial modelling as a core component of our buy-side acquisition mandates. By building smart, actionable models and tracking results, we empower clients to make informed decisions, mitigate risks, and maximise the value of their acquisitions.

A well-structured model won’t guarantee success on its own, but it will significantly improve the likelihood of achieving your growth ambitions.