Last week, I attended the 2018 International Production and Processing Expo (IPPE) in Atlanta, and met with over 30 company CEOs and senior executives to talk about their thoughts and viewpoints on the industry. As a merger and acquisitions advisor, those conversations inevitability centered on some of the recent industry transactions and the continued consolidation that is changing the landscape of the meat and poultry production and processing industry.
Several of the major processing equipment manufacturers have been actively acquiring the smaller players in order to broaden their equipment lines and to enter new markets. A walk through the IPPE displays at JBT, Marlen, Reiser or ProMach clearly demonstrated their acquisitive history, as these companies have often maintained many of the legacy brands acquired over the years. Similarly, on the animal nutrition and feed production side of the industry, major market participants such as Cargill, Alltech/Ridley and Kemin continue to be active buyers of companies with unique value propositions and innovative products.
Of course, CEOs often want our opinion and insight on transaction multiples and general market conditions, even if there is no imminent plan to sell or buy. My message was quite simple: well-run businesses with solid operations and profitability levels will always attract strong multiples, especially when combined with a talented management team and a differentiated market position. Under the current conditions, there are a limited number of quality opportunities available, and a lot of well-capitalized buyers that are driving the high valuations. However, even if multiples slide somewhat in the future, as long as your business is growing, it will also be worth more in the future.
While the overall market conditions remain highly favourable for sellers, and quite expensive for buyers, we do believe that we are nearing the end of this part for the cycle. Rising interest rates will increase the cost of capital and eventually start putting some downward pressure on valuations. With strong economies in both Canada and the U.S., inflation worries may also start to take hold. If you are an owner of an innovative animal nutrition or processing equipment company and are considering a sale, now is a great time. Running a competitive process is the best way to ensure that you find the right buyer at the right valuation. For buyers, strict adherence to a disciplined acquisition strategy is well advised.
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