- M&A strategies are evolving as national companies look to maintain the "local" feel of smaller, regional brands they acquire, according to Food Navigator. There is concern that loyal consumers can view deals like this as a sign that a brand is "selling out," which could cost the buyer a significant portion of the customers they were trying to attract in the first place.
- Tactics to make these transitions as smooth and successful as possible include basing the purchase price on post-sale performance, and making smaller investments in multiple companies. Companies also should be allowed to continue operating independently, as opposed to buying them outright. In addition, sellers are modifying terms to include agreements from the buyer that the company will maintain the local focus of the brand after it takes over.
- Tyler Savage, a partner in Nixon Peabody's M&A corporate transactions practice, told Food Navigator that both the parent company and the newly-acquired brand should immediately explain their future plans to consumers. This would prove "that they aren't diluting the local or regional brand just because a national company is there now post-acquisition," he said.
Small brands with a strong "local" quality and Big Food companies that want a stronger regional presence both have an incentive to maintain a product's integrity after acquisition papers are signed. The startup wants to be reassured that the product they developed from scratch won’t be cheapened or their ability to innovate and develop new products lost. The buyer wants to keep the product's loyal customers happy so they keep buying the item, or else it just bought a company that is losing sales and customers.
One way to do this is to keep the innovator, and often owner of the startup, involved after a new company takes over. Justin Gold, founder of Justin’s nut butters, did just that — and recommends other startup owners maintain a presence after a sale as well.
“It’s a marriage, and you wanted to make sure if you get married to someone, that it’s forever," Gold told Food Dive last year. "When I look back, I think we made all the right decisions. Hormel has been great at keeping to their word and keeping us separate and letting us stay a mission-based organization.”
When a deal is reached, some companies may wonder if it’s better to try to keep the acquisition under the radar to not risk losing loyal customers who may view deal as "selling out." This would be a mistake. Social media and easy internet access have made information like this very simple to find, and staying hush-hush on the matter would likely only worsen the images of both companies.
If possible, it’s better to have a clear message from both sides that explains how the product will remain the same despite new ownership. The more the seller and owner can get ahead with their own messaging, the better.
There will always be risks when dealing with M&A, for both the buyer and the company being acquired. The startup may sell to a company that will ignore the values and mission of the product they acquire, weakening its brand. On the other hand, the buyer could overpay for an item that doesn’t return on the investment.
Maintaining the look and feel of the product is more important now than ever. Consumers don’t want to see their beloved juice, bread or nut butter change after new ownership is in place. That applies to both the product itself, as well as its packaging and price.
Startups and national companies can learn quite a bit by looking at past deals that both worked and failed. Small companies would do well to take a page out of Justin Gold’s playbook and speak with founders of companies already acquired by the food manufacturer courting them. It’s a good way to discover if they keep their word on certain agreements, and how they’re treated afterwards.
Another lesson is to let the new acquisition operate independently, as Nestle did with California-based Sweet Earth and PepsiCo has done with Kevita. In short, if it isn't broke, don’t fix it.
Dr Pepper has learned that lesson the hard way with its $1.7 billion purchase of Bai Brands that it has struggled early on to integrate. In June, the soda giant announced that a company insider would take over leadership from Bai founder Ben Weiss, who has left the business. While little is known about why he departed, the fact that Dr Pepper replaced him with a ten-year veteran from within suggests executives were looking for a change in direction and didn't believe Weiss or other officials at Bai were the answer.
This is just one example that businesses can learn from as they look for companies to acquire. They would be wise to look beyond just closing the deal, and do more to plan for the future.