The global ice cream market is booming. According to Grand View Research’s market analysis report, the industry (valued at $79 Billion USD in 2021) is expected to grow at a compound annual growth rate (CAGR) of 4.2 percent from 2022-2030. This growth has translated into the proliferation of many new frozen dessert brands entering the market.
As a result, the level of competition is becoming unimaginable, with brands fiercely attempting to win consumers’ hearts – and wallets.
Some of the newer brands will thrive and become established brands. Many of them hope to leverage a healthy growth trajectory and, eventually, sell to larger organizations willing to pay a premium for their hard work.
Others, however, are struggling to make ends meet at both ends – particularly with increasing inflation rates.
The bottom line? Lots of brands are now in the market to sell.
But as we know, selling an ice cream business isn’t as easy as simply putting up a “for sale” sign and waiting for offers to start pouring in. Instead, the right opportunity needs to meet the right brand.
If you’re a well-capitalized, growing brand with healthy margins, the opportunity to sell is likely out there. But how does one go about selling a frozen dessert business?
If we’ve been wondering, then you may have been, too. And as an organization that prides itself on offering the best solutions in the frozen dessert industry, we needed to get to the bottom of it!
That’s why we decided to launch something new: a series of articles to unravel the ABCs involved with ice cream business mergers and acquisitions.
In this article, the ice cream M&A team at Raymond James provides us with some high-level perspectives on what to expect when working with an investment banker to sell your ice cream business.
#1) Comprehensive Business Review
Before you even decide to sell your business, you need to create a clear, realistic, long-term vision and business plan.
“All of our clients feel like they are fully ready for a transaction,” says John Barrymore, Managing Director at Raymond James, “then all of them are surprised at how much preparation is required.”
Why? Because any potential buyer wants to see that you have a defensible business case with a large-scale growth opportunity. Without one, the initial evaluation of the business will be challenging.
To help their clients understand what to expect from a sale process, Raymond James requests specific information about the business to perform an assessment. They generally ask around ten preliminary questions, including:
What do your manufacturing, warehousing, and distribution look like?
What are your sales by customer, product, and channel for the past three years?
What’s your number of doors and points of distribution over the past three years?
What’s your velocity data for the past three years?
What’s your annual P&L for the past three to five years?
What’s your new product pipeline look like, and anticipated timeline for release?
What are your expected new retailers in the next 1-2 years, and expected distribution for each?
What’s your 5-year forecast?
#2) Business Assessment
Using the information from step one, the investment banker will provide an assessment that includes elements such as:
A market update to give insights into the M&A market
A list of their proposed investment highlights which identify the key value drivers of the business
An assessment of one or more growth scenarios and what needs to happen to achieve each scenario
A valuation analysis, including:
Comparing the business to other companies which have executed sale transactions
Creating a net present value based on growth projections and the cash flow of the business
A list of potential buyers of the company
A timeline of the M&A process, including clarification of the roles and responsibilities of each party involved
#3) Expert Recommendation
After considering all the information gathered, Raymond James will usually recommend which next steps you should consider. It can be one of two things:
Recommendation to Sell
If you decide to work with an investment banker, expect to pay a representation fee based on the size of the transaction. The exact amount depends on the business valuation, but generally, the smaller the business valuation, the higher the rate.
Since the sale process can take anywhere from six to nine months, Raymond James recommends that you should commence the process during the summer season with the goal of completing a deal before the start of the next season.
Recommendation Not to Sell
But sometimes, the timing isn’t right to sell your business. In this situation, the investment banker can let you know what to work on to prepare to sell in the future. “We always provide something helpful to our potential clients in the way of recommendations for the future,” says Barrymore. For example, if you’re in the middle of building a manufacturing plant, you may be advised to wait until its completion to gain more business value. If you are about to launch a series of new products, it may make sense to see how they perform in the market first.
A lack of growth or being too small of a business may be other reasons you’re advised not to sell.
Unlike buying or selling residential real estate, marketing a business for sale requires an advisor to contact potential purchasers and tell the company’s story in the market. However, if you already have your own industry contacts, you may be able to work out a deal directly with a buyer.
But before any sale can even be started, a large amount of background information needs to be gathered and analyzed. Only then will you truly know if selling your ice cream business at this time is in your best interests.
Are you considering buying or selling a business in the ice cream and frozen dessert industry? If so, let us help! Email us so that we can provide some initial thoughts and make referrals for you.
Founded by former executives in the ice cream industry, INNODELICE aims to create a worldwide ecosystem of solutions within the frozen dessert industry. Thanks to the relationships fostered by INNODELICE, manufacturers, brands, importers, distributors, and suppliers can discover, buy, and sell solutions to grow their businesses. These solutions include co-manufactured and branded products and innovative and competitive ingredients, packaging, and services. Our collaboration model generates lower costs and fewer risks for our participating partners while optimizing their time to market. To learn more about INNODELICE, contact Andrea Montreuil or visit www.innodelice.com.