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Interest in food and drink businesses remains strong, but buyers are becoming increasingly selective about where they invest. Richard Naish, head of corporate/M&A at Walker Morris, explores why businesses considering an eventual sale should focus less on timing the market and more on being properly prepared.

Despite continued economic and geopolitical uncertainty, food and drink remains one of the UK's most active sectors for mergers and acquisitions. Businesses with strong brands, established customer relationships and clear growth potential continue to attract interest from both strategic buyers and private equity investors.

The challenge is that buyers have become increasingly selective. Access to information has improved, due diligence is more detailed, and investors are taking a harder look at how businesses operate beneath the headline numbers.

For owners considering a future exit, this means the focus should not simply be on finding the right buyer at the right time. The businesses that tend to secure the strongest outcomes are often those that have spent years preparing for a transaction before one is ever on the horizon.

What buyers want to see

Every acquisition has its own rationale, but certain themes recur in buyer discussions and due diligence exercises.

Growth is, of course, important, but buyers typically want to understand how sustainable that growth is. A business with long-standing customer (but not overly concentrated) relationships, opportunities to expand into new channels or markets, and a track record of consistent performance is generally viewed much more favourably than one whose success has been driven by short-term factors.

Operational resilience is another key consideration. Recent years have highlighted the importance of secure supply chains, dependable (or even interchangeable) supplier relationships and experienced management teams. Buyers want confidence that a business can continue to perform amid disruption or changing market conditions.

Alongside this, investors will look for opportunities to build on what already exists. Whether that is expanding distribution, NPD or improving operational efficiency, buyers want to see a clear route to future value creation.

Why last-minute preparation can be costly

One of the most common misconceptions around exit planning is that it begins once the sale process starts.

Issues that arise during due diligence are rarely new. More often, they relate to historical decisions, legacy arrangements or documentation that has not kept pace with the growth of the business.

When those issues are identified during a live transaction, management teams can find themselves trying to resolve complex matters against tight deadlines and 'in the spotlight'. At best, this can slow a deal down. At worst, it can affect value or buyer confidence.

Starting the process earlier gives businesses time to identify potential areas of concern and deal with them on their own timetable, rather than under the pressure of a transaction.

Areas that often come under scrutiny

There is no single checklist that applies to every food and drink business, but there are some areas that we consistently see attracting particular attention during due diligence.

Employment issues regularly feature in diligence reviews – with National Minimum Wage featuring highly (particularly around changing times and the provision of uniforms), alongside holiday pay and right to work checks. Buyers will also assess contractual arrangements for senior personnel with a fine-tooth comb.

Regulatory compliance, be that health and safety (and, in particular, if there have been any RIDDOR incidents), environmental (such as effluent permitting) and data will be under the spotlight too.

For a branded business, intellectual property is an obvious area of focus. Reviewing trade mark protection and understanding any potential intellectual property risks can help avoid difficult questions later in the process – did the designers of the logo, that is now central to the brand, actually transfer the rights in it to the brand 'owner'?

Commercial contracts can also come under scrutiny. This is less about contracts with the main UK grocers – where anything beyond a purchase order is rare, save for the larger, more established supplies/relationships – and more about supplier arrangements (going to supply chain resilience), co-man and co-pack agreements.

Food safety

Food safety matters, product recalls, regulatory breaches and other compliance issues can all influence a buyer's assessment of risk. Businesses should also consider their wider obligations, including those relating to packaging, recycling, import/export controls, sanctions and anti-bribery measures.

Where disputes, investigations or enforcement action have arisen, buyers will expect to understand both the issue itself and how it has been managed. Having policies covering these areas is important, but training, implementation and genuine board-level buy in must accompany the written policy.

The same principle applies to property matters. Whether premises are owned or leased, businesses should understand the practical and legal obligations attached to their sites, including any liabilities, such as dilapidations, that may arise in the future.

Building value before a transaction begins

No business is ever completely free from risk, and buyers do not expect perfection. What they do look for is a business that understands its strengths, recognises potential weaknesses and risks, and has taken sensible steps to address them.

That is why successful exit preparation is often less about the final sale per se, and more about building a stronger business and will stand up to a robust due diligence process.

The key takeaway for food and drink businesses is that exit preparation should not be viewed as a 'nice to have/do'. To help achieve the best price with the least transaction risk, the groundwork should be laid well in advance of starting to court the market for buyers and, even if there aren’t plans to sell, being well prepared for an unsolicited approach requires the same level readiness.

Those businesses that understand what drives value, address issues before they become obstacles and prepare well in advance are generally better placed when opportunities arise. In a market where buyers are increasingly thorough, preparation can make a significant difference to both the sales process and the outcome.