Operating business market: food production | Sale of business

...after the crisis and that`s much better to inwest the free money already today to meet its finish not only without losses but also with an income.

Now we offer the first article of the cycle, devoted to the market dynamics analysis of operating business types in Ukraine, worked out on marketing researches information, collected by the InterCredit company specialists. Today we will talk about the eternal things: about something always will be claimed by buyers — food stuffs production.

Propositions grows...

It should be noted that for five months of this year, the food products enterprises market has been suffered by the noticeable changes, both quantitive and structural.

What about the first, as far as deepening — not so much crisis, how accompanying it panic — fully predictable grew number of such business-objects proposed for sale.

So, if in January-February, 2009 among the offered small production enterprises, related to a building industry, mini-factories on concrete&blocks and other building materials production, prevailed, by the end of May this list was considerably filled up including the operating food industry enterprises.

Thus, the general stake of similar business-objects at the market grew from 23 to 29%, and number of enterprises, actually attained to a food production, reached almost one fourths of general amount propositions in the group.

As for structural changes, for the past five months at the operating business market the separate segments of food production were expressly designated, namely:
raw material processing in the intermediate products (pastes, stuffing, flour etc.), using in future both for a direct sale users and for the component food stuffs production;
actually food stuffs making (ready and ready-to-cook foods).

Itshould to be marked, that level of first group propositions remains at former level from the beginning of the year (about 8%) and presently consisted of different comparatively small complexes for vegetable-grower, garden and stock-raising products processing, small factories for agrarian products processing etc.

According to the to the preliminary calculations made by the InterCredit company specialists, which have been confirmed by the current statistical data, by the end of summer it is possible to expect the considerable (in 1,5-2 times) increasing of such market propositions, that will be related to the already beginning fuel price advancing and complications in the credits getting for the enterprises maintenance and development, accompanied by the reduction of demand for their products.

As for enterprises for the prepared food stuffs production, a peak of their sale propositions increasing at the market (up to 35-40% in a group) was on March-April 2009, while to the middle of May already it was not only stabilized but also rotined a tendency to some decline, that can serve as an indirect certificate that the market tests a bottom in this sector, and considerable price declination on similar business-objects could not be expected already.

...and prices do not fall already

It is Necessary to mark that the basic price-cutting stage on food production enterprises offered for sale, remained relatively far in the past — at the end of April — beginning of May.

It was connected, mainly, with the human factor action: exactly in this time most owners, proposing their business for sail in February-March (on the wave of panicky news about the «second wave» of crisis) on groundlessly high prices, had time not only to calm down, but also to understand, that potential investors (and their business-consultants) are also able to counting, and will not purchase the enterprise for the unreal large sums.

Presently prices on such companies waved in a wide enough range, depending on scales, assortment and products specification, and on geographical places as well (as in relation to the sources of raw materials, and to the markets). For an orientation in the world of real figures, let`s take the examples of some business-objects, which were tested and estimated by the InterCredit company experts. So...

Enterprises for raw food stuff processing

Prices range iswide enough: from $200 000— flour-miller workshop (Odessa area), to $3 million — tomatoes processing factory (Kherson).

Ready-for-use products enterprises
If the lower price limit in this sector is a little differed from the previous group: $250 000— meat processing factory (production of the braised meat, pates etc.) in the Kiev region, a high bound passes on more than two times high level:

food stuffs factory (Cherkassy) — $7,5 million
bread factory (Kiev Region)— $7,5 million

It is especially should be marked the «water» business enterprises. Prices for them waved in a narrow enough range: from $300 000 (bottling workshops for drinking-water in Truskavets, Lvov region), to $500 000 (factory of mineral water in the Poltava area).

Why are they sold?

As is generally known, the «best» variants of veritable reasons for sale are:
a loss of interest to this type of activity
changing the place of permanent dwelling
the retirement (often closely associated with a previous point).

A little bit worse variants can be:

needs in free money for financing other owned enterprises which could make a powerful competition to the sold business or will be their key suppliers disagreement between the partners on key questions of business development (uncoordinated, often emotional, actions of one of them, could considerably increase the buyer`s risks.

The heaviest case is an attempt to sell an enterprise before it`s critical conditions will become noticeable, so called, with a naked eye. In this case, as a rule, the declared sale reasons are fully innocent, and potential often can not to set, what hides behind them.

From practice of our work, veritable sale reason exact determination is major and one of very difficult moment and very often a sale deal breaks away during the enterprise verification, proceeded according the will of potential buyer. For example, it turns out that business acquisition carries too high risks and does not guarantee the promised income in the future.

As for veritable sale reasons for actually food industry enterprises, which have been lightened during the objects verification by the InterCredit specialists, considerable (more than 40%) predominance of the second group reasons was set in it`s positive component (needs in free money for financing other owned enterprises), up to 30% were related to the loss of interest to this type of activity, 15% were because оf dwelling place changing, 8% sale propositions were made by businessmen, going to retire and only about 7% belonged to the negative sale reasons group.

Certainly, all suggestions of the last group were sifted out, to save the real buyer`s business time and don`t fright them off.

Does it cost to buy them?

It`s hard to give the synonymous answer for this question — the careful research is needed in every case. Nevertheless, the followings factors talk in behalf on food production enterprises acquisition.

1. «Eternity» of demand for these products. According to expert estimations, falling of food stuffs demand in Ukraine from the beginning of this year did not exceed 12-15%, that presents a sparing enough result as compared to the other types of business activity (for example, building, car sales, etc.)

2. Food stuffs market for the last months not so much diminished, as was suffered by the structural transformations — for example, the displacement of consumer interests in the less expensive commodities area took place, with the preserving (in average) consumption volumes.

3. The profitability of food stuffs enterprises went down insignificantly even in the crisis conditions, and for some products remained unchangeable

4. This sector possesses high vitality and the best capacity for post-crisis renewal, than, perhaps, any other operating business.

Professional comments:

«Based on our experience, we can assert, that business selling today is quite difficult process, success in which could be achieved only as result of joint work our company with the business proprietor — Valery Zheregelya, the commercial director of InterCredit, underlines —

— The point is, that an owner ought to be interested in the effective process of sale no less, than we — in the end-point of the deal. Therefore, possibility of future transaction success can be forecast already after the first meetings of our specialists with the operating business salesman ».