Welcome to the latest edition of ‘Bite Size’, our quarterly overview of activity in the food and beverage sector.
This edition provides analysis of M&A activity in the last quarter of 2014 as well as the year in review and also looks ahead to the trends we believe will shape the market in 2015. In this issue we also take a look at the issue of creditworthiness and alternative sources of funding. We hope that you find this newsletter useful.
Have you thought about your credit worthiness?
Following poor trading over Christmas, the departure of Morrisons CEO Dalton Philips might not be seen as a surprise. But is all the recent press on supply chain pressures and supermarket strategies prompting other people to look at your business differently?
Grant Thornton recently advised a leading food producer on securing £35 million of debt facilities to refinance existing debt and finance two acquisitions. The company is a market leader in their sector and a key supplier to major supermarkets. The fundraise allows the business to bolster its existing product offering, further expand its customer base (to include additional major supermarkets) and consolidate its market leading position.
With rapidly changing market dynamics as price pressure increases, challenges arise for many businesses and it raises the question of was expanding at the current time the right decision?
We would argue that these market dynamics create significant opportunity for agile, well managed businesses. Capitalising on these opportunities often, as in the case outlined above, requires additional financing and ensuring that your business is in the best position to navigate this process is key.
So what do you need to consider ahead of a pre-lending review which will be carried out by any potential investors? And how do you prepare for that conversation?
Key questions to consider include:
• What is your stakeholders’ perception of your credit worthiness? Who is taking a view on your credit worthiness? Your lenders? Potential investors? Suppliers? Landlord? Trade insurers? Your customer(s)? The answer is ‘all of the above and probably a handful more’
• Have you got a robust financial forecast that supports your strategic ambitions and demonstrates how you can gain from the turbulent market dynamics?
• Have you calculated the correct quantum of capital required to support your growth and avoid over-indebtedness, particularly in light of recent pressures?
There are some practical steps that you and your team can take to better manage your credit worthiness profile ensuring that messages to market are clear and accurate.