Industry Spotlight: Food & Beverage Financing

For food and beverage businesses, securing the right capital can be just as critical as serving the consumers who drive demand. Whether a company is looking to expand a product line, invest in new technology, or enter new markets, raising capital can be essential in serving up success.

Below are 3 reasons why raising capital is critical for companies in the food and beverage industry:

1. Expansion & Growth Capital: Food and beverage production can be a highly capital-intensive business. In order to grow, businesses must add capacity to not only better serve their existing customers, but to also build new relationships. It can be difficult to fund growth initiatives through operating cash flows alone, so raising capital with trusted partners can be key to success.
2. Strategic Partnerships & Acquisitions: Raising capital can also help forge strategic partnerships. For example, a company may be able to partner with a larger business that has complementary products or with a distributor that can help access new markets. Given organic growth can be challenging to achieve, food and beverage businesses typically turn to acquisitions to grow their business, either through buying a competitor or a new product line. Many businesses have realized over the years that funding research and development can be risky if new products aren’t well received by their customers or the market in general. Thus, M&A offers an ability to, in effect, “outsource” a company’s product development by purchasing an established brand and folding it in to their existing operations.
3. Competitive Advantage: By raising capital, a company can gain a competitive advantage over competitors that may not have access to the same level of financing. Better funding sources facilitates investment in new technology, marketing, and other initiatives that grow a business and improve market position. Given the food and beverage industry is highly competitive, companies are always seeking ways to automate operations to reduce their own costs to make them more attractive relative to less efficient peers. Investing in process improvement or advancing production technology is an on-going part of staying competitive—these investments typically call for outside capital on a periodic basis.

For companies that are considering raising capital, it’s important to work with a lender that understands the unique challenges and opportunities of the food and beverage industry. For nearly 100 years, we’ve worked with a range of middle-market food & beverage companies from restaurant chains to manufacturers.

Below are a few representative partnerships, that we’ve had the privilege of working with over the long-term:

Partner: Illy, an Italian premium coffee company specializing in espresso.

Our relationship with Illy began in 2012, as the Company was looking for financing to expand their brand. At that time, banks were pulling back due to the credit crisis and we were able to provide patient capital to support their long-term plans. Our flexible financing solution supported the Company’s growth plan and diversified the Company’s funding sources beyond its bank lenders. Our financing allowed Illy to focus on increasing their market share in the premium hospitality industry, as well as increase their distribution channels. Since our first transaction, our long-term financing has proved supportive in follow up transactions, helping the Company achieve their long-term objectives.

Partner: Privately held leading global chocolate and confectionary manufacturer, with a product portfolio of ~130 brands across chocolate products, bakery products, snacks, spreads, mints and cold drinks.

At the time of our first transaction, the Company was looking to acquire a US manufacturer to expand their global presence. The Company needed a long-term partner to provide acquisition financing, in order to broaden their offering and continue to grow in new markets. Through our long-term financing, we supported the Company’s expansion into the US, which has become one of its largest markets. Following the acquisition, our relationship has continued as the Company continues to pursue growth opportunities.

Partner: Leading producer, packager, and manufacturer of private label cheese, supplying 25% of all packaged cheese in America.As the Company was embarking on a large capital expenditure project to build a new facility and renovate existing facilities, they were looking for financing on a periodic basis.

As a long-term partner since 2004, the Company was familiar with our ability to see through leverage spikes that come with a project of that magnitude. Additionally, our Pru-Shelf offering and significant appetite allowed us to be flexible on timing  to meet the borrowers cash needs throughout the project. As a result, we provided a renewed and upsized Pru-Shelf facility with a long-term draw.

What would we suggest to food & beverage companies seeking financing?

1. Long-term vs. short-term investments: Consider if the use of funds is a long-term or short-term investment. If it is a long-term investment, such as an acquisition or a major capital expenditure, long-term financing can help to better manage financial risk. A long-term private placement offers years of “interest only” financing that gives borrowers flexibility to get new operations up and running without being concerned about principal payments. They benefit from knowing that their cost of capital is fixed and market conditions won’t impact their return on the investment. If it is more short-term in nature, such as building inventory or research and development, then they should consider leveraging their bank or credit facilities to match the asset they are building.
2. Flexible Partner: Having a flexible partner with a long-term view is of utmost importance. Growth initiatives can run into issues, whether it’s a delayed build, an acquisition with unforeseen integration challenges, or unexpected cost overruns. The best financial partner is one that can see through those challenges and can provide flexibility during those rougher patches.

At Prudential Private Capital, we understand the unique challenges that come with the food and beverage industry. Securing the right type of capital can help businesses remain innovative, deliver high-quality products, and continuously adapt to changing preferences. As a long-term partner with a strong understanding of local markets and trends, we combine our expertise to create customized solutions for middle-market food and beverage companies to reach their full potential. Learn more here.

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Publish Date: May 26, 2023