Opinion: Getting it right when changing hands
Many produce companies are family-owned businesses. Their growth
has been driven by responding to the market place with little
consideration for the eventual sale of the business. Their focus is
usually on passing the company to the next generation more so than
an outright sale.
Eventually, every family-owned produce company will sell to an
outside company or cease operating. The survival rate of a business
passed from the second to the third generation is less than 5%.
With this in mind, all family-owned produce companies should spend
some time planning for the eventual sale of their company.
I have the pleasure of working with many family-owned produce
companies. Eventually, we have a conversation about the transition
plan for their company. One of our initial topics is the company's
Produce companies make money three ways; growing, packing and
selling. Often times, these three functions are separate entities
giving each its own profit and loss objective.
The growing side consists of land owned by the company. Profits
are created when the return to the grower exceeds the cost to
The packing company packs product grown by the company as well
as outside growers. The packing company optimizes profits by
packing the most units, thus driving down the incremental cost to
The selling company will sell product packed by the packing
company, but may also sell product from outside packing companies.
The selling company makes money two ways. First, they make a
commission on selling products packed in the company facility.
Second, they make margin on the difference between outside
purchases and the selling price. Often times, the margin on outside
purchases will exceed the sales commission on internal sales.
Price it right
So, how does this impact the ultimate price of your
company? First, the business with three distinct profit
streams provides the diversification potential buyers covet. This
model will likely attract more high-quality potential buyers.
Secondly, investors are showing the most interest and paying
greater prices for companies that 'own" the most customers. So, it
is beneficial for you to focus on building the sales organization
aggressively. Land and buildings are much easier to acquire than a
quality customer base. Building a sales team that can drive sales
of both inside and outside products will prove valuable.
Once you are ready to sell your business, it is critical
to think through the selling process. Many companies exchange hands
because of personal relationships between the buyer and seller.
While this may sound logical it will likely result in a lower
selling price for your company. You should embrace a process that
will bring in the most potential buyers. This would include
strategic buyers (those in the industry) and financial buyers
The interest from financial buyers in agriculture is at an
all-time high. There are billions of dollars waiting to be invested
in agriculture with investors just looking for the right deal. It
will be to your advantage to seek out a professional organization
to represent the sale of your company. They should be skilled at
bringing in both strategic and financial buyers. The commission you
pay should be more than offset by a higher selling price.
In summary, I encourage you to spend some time thinking through
your business model. If you can effectively diversify and focus on
building your customer base, you will gain a better selling price
for your company. When the time comes to sell, utilize a business
firm that specializes in mergers and acquisitions in agriculture.
The combination of the right business model and an experienced
business broker will make you the most money.
Originally published in Fresh Fruit Portal.
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