Dana McCauley recently began a lively discussion on YODL about merger and acquisition activity in the food industry, noting that for some time now larger food companies have chosen to expand into new categories and markets through acquisitions of innovative start ups and SMEs rather than through internal investment. As a result, some entrepreneurs are adopting an exit-strategy mindset as part of their initial start-up plans.
If the trend continues, Dana believes it will result in great branding and marketing expertise being required to create new categories; and that more co-packers will be needed to provide plants and equipment for exit-minded entrepreneurs looking to keep their operations as simple as possible to make acquisition attractive.
We wanted to know more about what YODLers thought about the topic, and how it will affect your businesses and the food industry in Canada. Here’s what some of you had to say.
Participants:
Gunjan Syal, founder and chief strategy officer, GoEmerald, ON
Marc Wandler, co-founder/CEO, Susgrainable, Vancouver, BC
Does having an exit-strategy mindset limit the company’s potential in terms of innovation and growth?
@Gunjan: I do not believe having an exit strategy mindset always limits the innovation or growth. It is practical for companies to have the worst-case options identified, including practical exit strategies to ensure the business can survive. On the other hand, it is important to note where the connections are between the firm’s overall growth strategy, the leadership, values and the skillset on the team. These are ingredients to create a culture of innovation. Circularity ensures the innovation culture can be resilient during the desperate times. Some businesses may create products or services with the intent of exiting from the start; others may be committed to drive long-term growth by investing in, what I call a culture of circular innovation.
@Marc: I would argue it often has the opposite effect. Having an exit-strategy makes you focus on creating something valuable enough for someone else to want to purchase what you have created. This ensures you constantly have an end customer in mind. Having an exit-strategy can also indicate that your company has thought of innovation and growth up to a certain point and through the exit, the mission could potential be advanced even further with the resources from the acquirer.
Do difficult economic times push companies to become more efficient and innovative, or do they push more entrepreneurs to exit the industry?
@Gunjan: The uncertainty during difficult economic times may propel companies to reflect back on their underlying values and mission. When resources are dwindling, companies will need to strategically choose where to focus for the greatest impact and alignment towards the right consumers – these are the consumers who will benefit from the services/ products. The difference in the post-pandemic world is that the rapid changes in consumer behaviours are creating a new layer of uncertainty. Inflation is also impacting drastic changes in supply chain operations. This will propel companies to invest in innovation, when resources are available and investments appear to drive long-term value. At the same time, innovation will suffer because ROI cannot always be calculated in advance – it requires trial-and-error to some degree. Novel partnerships, simplifying business models and solutions that can be pivoted quickly, will thrive in the difficult economic times.
@Marc: It does both in my opinion. Difficult economic times push customers to really evaluate where their dollars will go. For those companies who don’t panic and focus on their core offerings it will push them to become more focused and efficient. Any company that becomes spread too thin is at risk during these difficult times. At the same time, other entrepreneurs may get pushed out for several reasons – sometimes for the better and sometimes for the worse. For those entrepreneurs whose mission or vision is completely wiped out, exit may be the best strategy.
Are M&As beneficial in the long run for the industry, or do they impede innovation?
@Gunjan: M&As can be beneficial when there is alignment in product strategy as well as the end user impact among the firms. However, M&A strategy may also severely limit a company’s ability to innovate as the culture of circular innovation may dwindle over time, if not deliberately harnessed after M&A. It will be key to ensure special attention is allocated to developing and aligning a culture of circularity, human capital and profit along with the customer needs.
@Marc: Again, it could be either. If the acquisition is between two values-aligned companies focused on growing the mission together, and they can leverage the skills and resources that each brings, then it will foster innovation. In other cases, it may be a strategic acquisition made by a bigger entity acquiring a smaller company that could be a threat in the future but isn’t quite there yet. Depending on how this acquisition is managed, especially when there are big differences in culture, this type of acquisition can impede innovation.
@Dana’s take:
I would say that if, as many predict, a recession comes and our interest rates climb, that we will absolutely see M&A decrease. In my opinion, it is the very low interest rates that have encouraged many high-net-worth individuals to become angels and venture capitalists. If they can invest in safer products that get them a good return, they will abandon M&A activity for savings products. Disruptive technology and products that solve truly unmet pain points are always marketable. Unfortunately, they are pretty few and far between!
Have your say!
Tell us what you think about merger and acquisition activity in the food industry. Add your comments here.
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