LOS ANGELES, CA - Over the course of the past year, it seems like our industry in particular was awash in mergers and acquisitions. From the high-profile purchase of Mann Packing by Del Monte Fresh Produce to the private equity investment made in Dole by Total Produce, owners and operators in our industry took advantage of propitious economic circumstances to buy, sell, invest, and otherwise transact in ways that will affect the produce industry for years to come.

So, how can a potential seller best prepare for a sale or investment and reap the benefits of this frothy investment market? I spoke to Joel Montminy, Founder and CEO of CREO | Montminy & Co.—a Los Angeles-based boutique investment bank with extensive experience advising companies in the food industry—to find out more about the process from the field up.

Q: Tell me a little bit about how a potential seller would approach the process of selling a produce company. How would, say, a grower/shipper prepare for the process?

Joel Montminy: Anyone contemplating selling their produce business in today’s market should understand that preparation is key, and there are no shortcuts to maximizing outcome. Parties that think they can wing it on brains and personality alone are at a severe disadvantage. In this regard, a grower/shipper might want to take the following steps at a minimum:

1. Get audited or reviewed financial statements or a sellers Quality of Earnings Report;
2. Get internal books and records in order (for all relevant entities) with counsel;
3. Address and ring fence any potential contingencies or liabilities;
4. Build well thought out financial projections that are bottoms up and defendable;
5. Assemble the deal team in advance of the process (e.g., investment banker, deal lawyer, accounting, and tax advisors).

Q: Can you walk me through some of the specific aspects of orchestrating a potential sale?

JM: We utilize four primary steps in our sale process, all of which play out in sequencing over what is typically a six to eight month period.

The first stage is “Due Diligence,” which involves reviewing the historical financial results and growth prospects, developing and refining the financial forecast, gathering operational and legal due diligence materials, analyzing structural considerations including tax planning and accounting issues, and reviewing tactical and strategic considerations.

The second stage is “Marketing,” wherein we prepare marketing materials that highlight individual attributes that might appeal to specific buyer/investors, identify and screen buyers/investors, prepare management presentation and coach management, proactively identify issues and develop mitigants, conduct a controlled process with strict guidelines, and minimize business disruption.

The third stage is “Bid Evaluation.” It involves comparing and analyzing bids and considering corporate governance and the ongoing roles of shareholders.

The fourth stage is the “Negotiation.” This stage involves obtaining the best possible price and terms and structure, advising on tactics, negotiating favorable agreement terms, the appropriate position for all shareholders, and last but certainly not least, managing for the 11th hour surprise that can come.

Q: What are some of the pitfalls that might derail a negotiation?

JM: Generally speaking, deals fall apart for one of four reasons. The first is a catastrophic shock to the economy or market, such as 9/11 or the Collapse of Lehman Bros and AIG. These rare events can completely freeze and derail M&A activity for weeks and even months. The second is that the seller has a meaningful and potentially long-term deterioration in their financial performance. The third is that the acquirer uncovers something materially different or problematic during due diligence, versus what was presented, that dampers their interest level. The fourth is that the acquirer loses internal capital and overall appetite to close due to things like another strategic mandate taking priority or changes in their financing.

Without getting too specific, we have found that when a seller gets personally invested in transaction specifics it is detrimental to the process. In any M&A transaction, there are a myriad of hurdles to overcome and points to be negotiated. If sellers feel personally slighted by potential issues, that changes the conversation and leads to emotional and oftentimes unnecessary decisions. There will always be contentious issues, lively debates, and last minute negotiations in any transaction process.

At the end of the day, deals are most successful when there is an overarching fair process involving professionals who know the M&A “rules,” rational and reasonable counter-parties, and an element of trust—the latter being the most critical when issues come to a head. An experienced advisor who does this every day will objectively assess, address, and advocate, which leads more often than not to the desired outcome.

While there may be room for error in a number of respects, the rewards of successfully executing a sale or orchestrating a private equity investment can far outweigh those risks—provided a seller is aware, prepared with the right financial advisors and services, and is prepared to strike while the iron is hot.

To learn more about private equity’s role in the fresh produce industry, interested parties can see and hear from Joel—alongside panelists Ferrell Daste, Jay Pack, and moderator Robert Lambert—at the M&A educational session at this year’s Viva Fresh Produce Expo in San Antonio. The session, to be held Friday, April 6, from 8:45 to 9:30 a.m. at the JW Marriott Hill Country Resort and Spa in San Antonio, Texas, promises insights into the role of private equity in our industry and how it is changing the face of business growth, acquisition, and innovation in produce.

CREO | Montminy & Co.