The animal food production industry declined slightly in recent years, but the industry remains strong with expected growth. Due to anticipated higher demand within the industry, many investors are intrigued by the opportunity to purchase an established animal food production company. For producers planning their exit strategy, this makes now an opportune time to sell for fair market value.
About The Animal Food Production Industry
The animal food production industry is large and expected to grow over the next five years. Companies within the industry engage in the manufacturing of feed for farm animals, meat products for household animals, and more. Here
- There are approximately 4,000 animal food production companies in the U.S.
- There was a -0.6% annual growth for the animal food production industry from 2018 to 2023
- The animal food production industry generates $60.1 billion in annual revenue
- The annual profit for the animal food production industry is $3.1 billion
- Experts predict a sizable increase in annual growth (1.2%) from 2023 to 2028
Poor demand conditions are largely responsible for the slight industry decline from 2018 to 2023. However, since demand is expected to rise, animal food producers are expected to see growth. Although, there are fears of competitors entering the field due to higher demands.
Selling an Animal Food Production Company: Here is What You Should Know
There are multiple stages of a business sale. Each stage has certain complexities and legal obligations that must be dealt with and completed. Of course, every company has a unique sales process as well based on the specifics of their organization. In general, the sales process for animal food production companies includes these steps:
- Market the business
- Find a buyer
- Negotiate the deal
- Complete due diligence
- Close the sale
Although it may seem straightforward, a lot goes into a sale. We recommend working with a business broker and an attorney throughout the process. To help you prepare, below are several tips to help ensure a successful and efficient sales process.
Receive a Business Valuation From a Professional Broker Before You Begin
Your business valuation lets you know how much you can expect potential buyers to be willing to pay for your animal food production company. Your valuation takes into consideration your financial data and the intrinsic value your property offers. More specifically, your business broker considers the following when formulating your valuation:
- Seller’s discretionary earnings (SDE)
- Earnings before interest, taxes, depreciation, and amortization (EBITDA)
- Gross profit
- Net sales
Moreover, they use acquisition multiples (or rule of thumb data). This takes into consideration calculated averages of the most recent sales data within your industry. It also uses your SDE, EBITDA, etc. to formulate valuations. The rule of thumb data for animal production companies include:
- Animal food production companies sold between 1.38 to 4.82 times the Seller’s Discretionary Earnings (SDE)
- Animal food production companies sold between 0.36 and 1.53 times the annual net sales
- Animal food production companies sold between 4.92 and 10.70 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Your business broker should also consider the intrinsic value of your animal food production company. To determine intrinsic value, they should consider your unique competitive advantage, the quality of your machinery and equipment, the quality of your workforce, and your reason for selling (among other considerations).
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Determine When and For How Much You Intend to Sell Your Company
As you might expect, getting the price right when selling your animal food production company is essential. Timing is also vital. There is usually a window of opportunity where your company has the most value. The goal is to capitalize upon this window of time. This could mean going to market right away. Although, in some cases, your business broker or consultant may advise you to wait and continue to improve your company’s value.
Preparation is Key: Prepare All of Your Documents Before You Sale
All too many deals fall through because the seller does not produce the necessary documents promptly during the due diligence stage. Additionally, not having certain verified financial documents can impact your negotiation efforts. Consequently, we highly recommend preparing before you market your business. This includes collecting all documents you will need, such as your tax returns and profit and loss statements over the past three years, insurance policies, and lease information for your warehouse. Many of these documents may be necessary for a professional business valuation as well. Your business broker can help you determine what documents you will need.
Maintain Confidentiality Throughout The Sales Process
Perhaps the most vital aspect of the marketing stage is confidentiality. You do not want news of the potential sale to reach your customers or employees. If news of your sale were to go public too early, this could scare away would-be purchasers. You can ensure confidentiality by working with a business broker with access to networks, databases, and contacts through private channels.
Have a Structured and Organized Due Diligence Map and Timeline
The buyer understandably needs time where they can verify all of the information that led them to make a purchase offer. This period of time is known as due diligence, and it starts as soon as a prospective buyer signs a letter of intent. Although it is important to remain transparent and helpful throughout due diligence, it cannot drag on for months. Instead, you should have a pre-established due diligence map and timeline to ensure an efficient and smooth due process. This allows you to close the sale sooner and reduces the risk of the buyer backing out of the deal.
Stay Focused Throughout The Closing Process
The closing of the sale is an exciting time. However, the work is not finished. Be sure to have your attorney attend the closing and review all information within the purchase agreement one last time. You will also need to bring certain documents to closing, such as transfer contract agreements and corporate documents. Your business broker and attorney can help you prepare for the closing.
Considering Selling Your Company? Get Started With a Free Valuation At Sigma
Sigma Mergers and Acquisitions has helped hundreds of businesses successfully sell at or above fair market value. We understand how to look beyond the numbers and see the value in your business story. We then use this story, along with your financial records, to find you a buyer who also sees your value and is willing to make a competitive offer. To learn more about the sales process and to get started, schedule a consultation today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
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