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