Why enhancing the value of your business is so important, and factors to consider when developing value-enhancing strategies using a food industry case study

1. Enhancing Company Value
Stuart M. Moss
Managing Director
Presentation to the Food Processing
Suppliers Association Annual Conference

2. © 2014 FMV Capital Markets, Inc. 2
Introduction
 Businesses $10 - $100 MM
 Value-enhancing strategies
 Business valuation
 Acquisitions & divestitures
(M&A)
Focus
 Food processors
 Food machinery suppliers
 Ingredient suppliers
 ProcessExpo exhibitors
Industry Involvement
MISAMeat Industry Suppliers Alliance
 Equipment suppliers
 Ingredients suppliers
 Consumables suppliers
 Service suppliers
Suppliers
 Private business owners
 Corporate executives
 Division Management
 Consultants
Roles

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Topics
Developing Value-Enhancing Strategies
Tangible Benefits of Enhancing Value

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Operational Benefits of Enhancing Value
1st
-- Stronger Competitive Position
• Industry continues to evolve
• Customer changes
• Competitor’s moves
• Industry “winners” will:
• Devote more resources to organic growth
• Be more attractive to acquisition/alliance targets
• Maintain an operational cushion to survive
unexpected bumps
2nd
-- Easier Access to Capital
• Remains inexpensive
• More accessible for stronger companies
• To fund growth
• To further improve competitive position
• To manage bumps
42%

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Transitional Benefits of Enhancing Value
Every private business owner will eventually exit their company
• Hand over to Family
• Sell to outsiders
Objective of owners anticipating a family transition
• Implement value-enhancing strategies
• Establish the strongest possible competitive position
Absentee Ownership
Sale / Gift to Family
Strongest Competitive
Position
The odds are against a successful family transition
• 70% of family businesses do not survive the 2nd
generation
• 88% do not survive the 3rd
generation

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Transitional Benefits of Enhancing Value (cont.)
Various ways to transition businesses outside family
Enhancing value enables owners to dictate terms
• Whether objective is operational or transitional benefits
• More control over where and when to transition
Highest Business
Valuation
Different objective for current ownership
• Implement value-enhancing strategies
• Create the highest short-term business valuation
Sale to Third Party
MBO or ESOP
Licensing or Strategic
Partnership
Restructuring /
Bankruptcy

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When to Enhance Value
Be PreparedYour Timing vs. Market Timing

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Low Customer & Vendor
Concentration
Consistent Financial
Performance Competitive
Differentiation
Revenue & Growth
> Industry Average
Operational
Efficiency
Strong Financial
Performance
Protected IP
No Legal or
Environmental Issues
Experienced
Management Team
Solid Business Systems
Value-Enhancing Strategies
Strategies should focus on Value Drivers impacting a company’s
ability to realize its Operational or Transitional benefits
Operational Value-DriversOperational Value-Drivers Structural Value-DriversStructural Value-Drivers
Robust Business
Intelligence System

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Contents
Developing Value-Enhancing Strategies
Tangible Benefits of Enhancing Value

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Case Study: Processed Meat Industry
Increasing Consumer Demand
• Growing, aging population
• Modest economic recovery
• Increasing demand for:
 Convenience foods
 Ethnic foods
CAGR
Pressure on Food Processors
• Food safety
• Raw material prices
• Price & delivery demands
Consumption Growth 2013-18 (U.S.)
Food Processor Imperatives
• Create new value-added products
• Address operating challenges:
 Internal efficiency vs. co-packing flexibility
 Retaining skilled workers

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Case Study: Processed Meat Industry (cont.)
Opportunity for Meat Industry Suppliers
• Empathize with customers
• Address unmet needs
Changing Competitive Landscape
• Current suppliers broadening offerings
 R&D
 Acquisition or Teaming
• Threat of new processing equipment entrants
 Meat segment growing 2x overall industry
 Largest market is USA
$Billions
18%
Meat Industry Supplier Imperative
• Develop value-enhancing strategies
• Focus on key value drivers
• Utilize most appropriate strategic frameworks

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Strategic Frameworks
Supplier Power: Low
-Easy availability of raw materials
-Fragmented raw material supplier
base
Competitive Intensity:
Medium
+Concentration of
equipment suppliers
+Significant investment in
worldwide capabilities to
improve technology &
increase revenues
+High exit barriers
-Attractive industry growth
-Strategic alliances exist
New Entry Threat: Medium
-High capital requirement
-Established relationships with
Large & Mid-Sized processors
+Possible expansion from other
food equipment segments
Buyer Power: Medium
-Far more buyers than equipment
suppliers
+Large buyers = 30-50% of lines
+Competitive & customer
pressures raise buyers’ equipment
requirements
Threat of Substitutes: Low
-Manual processes less viable
-Cheap knock-offs not acceptable
to processors
+Used equipment available
Industry Attractiveness framework for equipment manufacturers
currently outside processed meat industry

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Strategic Frameworks (cont.)
Mapping framework for describing how broadly existing suppliers
compete (scope of supply, food segments, geographies)

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Purchase
Criteria
Priorities
Customer Segment A Relative Ranking
1st
Machine uptime Comparable
2nd
First pass quality Better
3rd
Machine throughput Worse
44h
Life cycle cost Better
5th
Ease of operation Comparable
6th
Field service support Worse
Strategic Frameworks (cont.)
Differentiation framework comparing how well relevant suppliers
meet the key purchase criteria within various customer segments

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Strategic Frameworks (cont.)
Competitive AdvantageCompetitive Advantage
Competitive Advantage framework to determine what internal processes,
IP, or capabilities can create and sustain key differentiators

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Wrap Up
Consider Variety of Strategic Frameworks
Prepare to Take Advantage of Opportunities
Enhancing Value Creates Tangible Benefits
“Control
your own
destiny, or
someone
else will.”
Jack Welch
Stuart M. Moss
smoss@fmv-cm.com
Office: 949-759-4499
Mobile: 714-412-0880