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leading the way to results for fresh food marketing

Those attending the CPMA event
April 2-4, in Montreal
can connect with FreshXpert Eric Bosveld
ebosveld@sdrventures.com | 519-709-1783

What EBITDA Multiple can I expect if I were to sell my Produce Business?

By Eric Bosveld
I get asked all the time “what multiple do you think my business would sell for?” For businesses operating in the Produce Industry, my answer is always “that depends!” Most profitable businesses with less than $10 million in operating profit will trade between 4 to 8 times EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). That is a huge variation and there are literally dozens of variables that will impact whether your business trades at the high end or low end of that range.

First, it is helpful to understand what EBITDA is, and why is it used so extensively as a valuation metric. EBITDA is a proxy for cash flow (before capital expenditures and changes in working capital) and is helpful in comparing one business to another. It normalizes comparisons of companies’ operating earnings with different levels of debt (interest payments), different tax structures and where different investment decisions have been made (capital expenditures).

Next, potential sellers must understand the period for which the EBITDA multiple applies. A forward EBITDA multiple is typically based on the current fiscal year before its completion. If a company is growing, the same multiple means a higher enterprise value when compared to an EBITDA based on a previous period. Buyers however, typically think of EBITDA multiples that are based on the last fiscal year, the average of the last 2-3 years, or more commonly, the trailing twelve month (TTM) period. It is important that both potential buyer and potential seller are using the same period when talking about EBITDA multiples and their respective valuation expectations.

So, hypothetically, why does a grower packer with $5 million in TTM EBITDA trade for 5x and a value-added processor with the same EBITDA trade for 7x, when they both have the same historical and potential growth? What makes the processor worth 40% more?

The first important variable may be
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by Ron Pelger

Is your company becoming too internalized?

Any given program, when in operation, is obsolete.

Many suggestive ideas originate within a company. Unfortunately, some of those ideas tend to become tired and worn out. When that starts to take place, your competition has an edge on you.

I’ve heard people say, “If it works, don’t fix it” or “Stick to what works and don’t change a thing.” To me, that’s old mind-set thinking. Today, you have to always look ahead towards making everything better.

The biggest weakness of a company is accepting only internal ideas and recommendations. Some of those ideas are tabled and re-tabled several times in meetings and eventually become exhausted from procrastination.

A number of companies do not reach out the door into the world where social learning is rapidly coming up with active new ways to improve operations.

All companies gather a great deal of data. There are literally batches and batches of large, thick and solid computer reports heaped up on office desks waiting to be reviewed. Some are stacked on

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FreshXpert Anthony Totta takes a look at shrink in the March issue of Supermarket Perimeter.

Shrink
64%
of all shrink comes from the fresh departments
Inefficient ordering accounts for
39% of produce shrink
26% comes from improper handling, bad rotation, not culling, poor merchandising, retails and workmanship
 

Read the article to learn what the main culprits of shrink are and more insight regarding shrink in the produce department.
 
read Preventing Shrink

In Season: Market Memo

Update 4-1-19

April is a month of transition as growers move from their winter farms to the summer harvesting areas.  During this month yields tend to decrease, and we see more planting gaps.  The winter regions taper off and our summer locations tend to start slowly, especially after as much rain as we had this year.  Over the next few weeks expect breaks in supply, increased pricing and challenges with logistics.  Transportation becomes more of an issue as drivers have more distance to cover in between pick-ups.  Remember to promote items for the Easter pull like asparagus, potatoes, and strawberries.  Make sure you have contracts in place already for not only the product but also for transportation.  FreshXperts can assist with summer contracts for raw product and logistics. 

~Paul Grothe

Xpert Update

FreshXperts recently gathered in Kansas City. Dedicated time was set aside for members attending to gain a deeper knowledge of one another's focus, skill set, strengths, and passions.
Attendees toured local facilities, met vendors and various industry professionals, and discussed future plans for FreshXperts.
FreshXperts continually find opportunity to work together to best serve our clients and industry.

Ask the Xpert

Q: What factors drive decisions on shelf allocation? 
A: Three main factors are cost, profits, and seasonality. But you could say the bottom line is movement. Pay attention to what the customer is most interested in purchasing. If the 4th of July holiday is near, it's melons and sweet corn. If the customer base likes the convenience of pre-cut veggies and salad mixes over bulk greens, you would be wise to allocate more shelf space to what is selling.

Upcoming Events

CPMA

April 2-4
FreshXpert Eric Bosveld will be attending

PMA Fresh Connections Retail

April 10-11, Philadelphia
FreshXpert Anthony Totta will be attending

Organic Produce Summit

July 10-11, Monterey
FreshXpert Anthony Totta will be attending

 
Suggested Reading

The Produce News, Tim Linden, Retail View: Amazon's bricks and mortar move 'not surprising' 
Supermarket Perimeter, Anthony Totta, Preventing Shrink: Addressing points head on is the key
 

FreshXperts is a consortium of consultants in the fresh industry. 
Experts in all aspects of the fresh industry–from Farm to Fork
Growers - Retailers - Distributors
Logistics - Foodservice -
Start Ups & New Ventures

For more information about our member FreshXperts, visit our team page
http://freshxperts.com/overview/the-freshxperts/
Anthony Totta: CEO; Business and Brand Development Specialist
Tim Vaux: Executive Leadership Specialist
Eric Bosveld: M&A; Agro-Economics Specialist
Ron Pelger: Retail Operations Specialist
Jennifer Lawson: Administration, Information Design
Paul Grothe: Logistics Solution Specialist
Nick Pasculli: PR & Marketing
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