Food Ingredients: Recipe for Premium Valuations
|Buyers have a hearty appetite for value-added ingredient companies, and that craving has only intensified in recent years. The ingredients space is broad and fragmented across the U.S. and globally – leading to an increasing interest from strategic buyers and private equity (PE) investors alike.
The ingredients category ranges from unique flavors and natural preservatives to probiotics providing functional benefits to inclusions that elevate texture and palate. The sector is fragmented with many small, privately owned businesses, yet it is ripe for growth. Elevated consumer expectations, evolving food science and increased customization are at the forefront of growth within the industry.
Many companies in the space have high growth and valuation potential. For example, some of Lincoln International’s recent transactions have resulted in valuations approaching 20x EBITDA and above. Strategic, public acquirers are willing to acquire targets at a premium because they also trade at lofty valuations and see a path to drive continued sales growth with their expanded, international resources. Additionally, strategic acquirers place significant value on innovation capabilities, and they (and their shareholders) view acquiring a proven innovator as safer than building such capabilities. Meanwhile PE has also taken an interest due to the recent tremendous growth, meaningful whitespace and future opportunities for high-value strategic exits.
Lincoln International's Consumer Group discusses the factors that make targets more attractive for investment in the ingredients sector.
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