FALL/WINTER 2015
FOOD & BEVERAGE NEWSLETTER
WELCOME TO OUR NEWSLETTER!
Welcome to the Fall/Winter 2015 edition of our Food & Beverage newsletter. Food and beverage businesses are often not well prepared for when an IT disaster occurs. Our first article, “Business Continuity for Your Business” explores important components of business continuity for potential technology disruptions in food and beverage organizations as well as best practices to consider in the implementation of disaster recovery and business continuity plans. Both of these plans are important as they set out strategies on how the business will continue following a significant interruption or disaster. Our second article features an interview with Norm Beal, CEO of the Food and Beverage Ontario (FBO) organization. The province of Ontario is home to 3,000 food and beverage processing businesses; the sector generates $40 billion in economic activity and is the province’s number one employer. The goal of FBO is to promote and support food and beverage businesses in Ontario and within the global marketplace, and to build a united advocacy voice on issues impacting the competitiveness of the sector.
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FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
In the Road to Success section of our newsletter, we share the story of Perth Environmental, a company that provides safe solutions for food waste disposal. The company has developed a way to save on disposal costs and at the same time generate income by recovering oil from the waste. Customers today demand that food processing manufacturers are accountable to strict health and safety regulations. Perth Environmental takes these concerns seriously, and has developed a “safe and dependable” reputation as a provider of turnkey waste disposal services for food processors in Ontario. According to data from Thomson Reuters, the total value of M&A deals in Canada was $48.3 billion (U.S.) in the first half of 2015, up from $ 43.0 billion in the same period of 2014. The Fast Facts, Trends and Recent News section of our newsletter sets out selected transactions in the Canadian and U.S. markets. SunOpta Inc., a Canadian public food company, was active in the summer acquiring Sunrise Growers for USD $450 million and Niagara Natural Fruit Snacking Company for USD $7 million. SunOpta’s President and CEO, Rika Jacobs commented that the acquisition of Sunrise Growers is expected to increase its revenue growth and margin profile, provide multiple synergy opportunities and leverage their strategic focus on integrated consumer products. Saputo Inc., another Canadian public food company, increased its presence in the specialty cheese category in North America by acquiring Woolwich Dairy in October 2015 for CAD $80 million.
There were several recent notable U.S. transactions including ACME Markets’ purchase of A&P Supermarkets and B&G North’s acquisition of Green Giant International. ACME Markets, a wholly-owned subsidiary of Albertsons Companies, operates 107 stores and with the acquisition added 76 A&P stores. B&G acquired grocery goliath Green Giant and Le Sueur frozen and canned vegetable brands from General Mills for approximately USD $765 million. The acquisition was somewhat unexpected in light of increasing consumer demand for fresh foods. A recent Nielsen report indicated that produce vegetable sales grew 5% in 2014 compared to 2013, whereas frozen and canned vegetables declined. We appreciate the opportunity to share these articles, best practices, market activity and trends in the food and beverage sector. Thank you for your readership and we hope you enjoy the newsletter!
Ellis Orlan Co-Chair Food & Beverage Practice
Bruce Roher Co-Chair Food & Beverage Practice
BUSINESS CONTINUITY FOR YOUR BUSINESS Implementing a sound business continuity program is like having insurance. You hope to never have to use it, but, if you do, it’s there. This article will explore important components of business continuity for potential technology disruptions in small and medium sized businesses in the food and beverage industry. A business continuity program has two related elements. The first component is “disaster recovery” which consists of disaster preparedness and emergency response. Disaster recovery enables you to recover files after a disaster such as a fire or computer virus. The second component is “business recovery” which involves maintaining operations and producing output despite a system crash or power outage, allowing the organization to continue operations. When operations are disrupted for a lengthy period, it puts a business in jeopardy. The most important thing an organization needs to consider when setting up a business continuity program is to establish a disaster recovery budget based on what your company can afford. You may want 24/7 disaster recovery up-time, but your funds may not allow for that. One way to assess an appropriate budget is to ask: how much does it cost for us to lose one hour of work across the entire organization? At one manufacturer, it was calculated that it was in the $100,000 per hour range. There were 1,000 system users, so the cost was exorbitant for the company to be without its data for even one hour. Once the cost of downtime to the organization is determined, the next step is to assess how frequent downtime could happen within a year. There are many options in terms of speed of recovery which affect cost. IT infrastructure companies specializing in business continuity can assist your organization with advice on these options and setting a disaster recovery budget. The IT firm would plan and set up a business continuity program, including replicating a company’s servers to a cloud infrastructure. Today, the majority of applications could be replicated to the cloud via the internet, reducing costs considerably. For example, depending on data volume and other factors, using the cloud could cost less than $2,000 a month. Another important consideration that could impact the budget is to accurately determine the value of having immediate access to company data. For some businesses, rapid access to the data is critical. In other cases, businesses might be able to survive two or three days without access 4
FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
to core data. If this is the case, they may want to replicate their data to back-up tapes or another medium. The food and beverage industry generally requires a short recovery period in order to manage the completion of orders in process, supplier deliveries and spoilage issues. Tape is one of the less expensive back-up solutions, however there is more manual intervention required when you need to access the data. You also want to store the tapes and back-ups in a safe spot — not in your own building. The tapes could be stored in a bank vault nearby. Alternately, there are companies that will pick up your current set of back-up tapes and drop off another set of tapes at your office weekly. If the organization would like to move to a more automated backup solution, the next step is to replicate their data to another location or the cloud via the internet. This way, if you have to restore a file, it’s as easy as launching the web interface, navigating to the folder and click restore the file to its original location. Restoring files from tape generally will take more time and effort as you may need to recall tapes, load them into your tape drive and then restore the file you need. Replicating to the cloud is popular because internet connections are faster. One disadvantage to replicating to the cloud is that you are moving data back and forth through the internet with what we call “the pipe.” The data is encrypted, so it is generally safe from hacking. If you do not have a large enough pipe for the amount of data you would like to back up, the replication process becomes very slow. Depending on the size of your pipe to the internet, you can move a certain amount of data per hour. If this is happening during a workday, employees are using bandwidth, which makes it less available for the replication. If you are looking to fully replicate your servers, then you need a substantial pipe to push this data through. That bandwidth can get costly. If you have access to a fibre network, currently costs for the pipe are approximately $700 per month for a 100-megabit connection. While there is a cost to implementing a disaster recovery system, it is really an investment. A quick recovery period downtime following a disaster is important for allowing work-in-process orders to be fulfilled, ensuring your supply chain is under control and maintaining your reputation as a reliable company.
ROBERT BURIN Robert Burin is Director of Information Technology at Fuller Landau. He can be reached at (416) 645-6533 or rburin@fullerllp.com.
BRINGING THE INDUSTRY TO THE FOREFRONT Thirteen years ago, a number of food processors gathered in Burlington and formed the Alliance of Ontario Food Processors. Their aim was to elevate the profile of the food and beverage processing sector within the province. Over time, there was an awareness building that the food and beverage industry as a whole was siloed and not speaking with one voice. In August 2014, the Alliance of Ontario Food Processors re-structured and re-branded the organization to become Food and Beverage Ontario. The mandate was refreshed to represent all categories and sizes of Ontario food and beverage processing businesses in the province. FBO’s CEO Norm Beal was there from the start. Beal says: “Over a year and a half ago, we started working on a completely different governance model based on one member, one vote. We rolled that out at our annual general meeting a year ago last July. To coincide with that, we felt very strongly that if we were taking this new approach, we ought to rebrand the organization.” Food and Beverage Ontario is made up of 16 board members that represent small, medium and large businesses from every sector within the industry.
In addition to their major membership drive, Beal says that Food and Beverage Ontario currently has two main initiatives: “One is building an innovation resource that processors across the province can use to develop new products and technologies, as well as modernize plants.” The association is also working to attract new and young people into the industry as a first career choice. GOVERNMENT CHALLENGE Beal, who also sits on the Premier’s Growth Steering Committee, says that 18 months ago, at the Agri-Food Summit in Toronto, Ontario Premier Kathleen Wynne challenged the industry to grow by 120,000 jobs. Beal explains that the industry is already the largest employer in the Province of Ontario, providing over 130,000 jobs. The Premier’s challenge means doubling its size. Beal says this means the government recognises that food processing is not only the largest manufacturing sector in the province, but also the one with the most potential for growth. It is more than the prospect of jobs in the province that is exciting. Beal explains that Ontario’s food and beverage industry is well regarded on the international scene. “When you go to places like China, Taiwan or Thailand, or even over to Western Europe, (Ontario has) a great reputation for quality and food safety. But we don’t do a very good job of branding it.” The goal, Beal says, is to change that.
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FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
INDUSTRY TRENDS Beal sees growth coming from innovation, and says the innovators are small producers with potential to expand. Currently, there are only 50 to 75 large food processors out of over 3,000 in Ontario. Beal says recent immigrants to the country are the cornerstone of innovation. He explains: ”Many of them are the ‘ma and pa operations’ that are sitting around the kitchen table at night, thinking: “Remember when we used to have that great food product in our home country? I think that would do really, really well here.” Those companies have the potential to grow from five or six employees to 50, 60, 70, 100 employees overnight.” Beal points out it’s the small producers that, through innovation, will grow into medium-sized corporations that could employ 250 to 1,000 people in five to 10 years from now. The small and medium-sized organizations are the ones making substantial investments, both in human and capital resources.
Beal also sees growth in the field of healthy and value-added specialty products. “Healthy, local, gluten-free… those are key phrases these days. That’s the future of our industry. That’s what many of our small and innovative processors are doing. Ontario is known for producing unique products.” WHAT DOES THIS MEAN FOR FOOD AND BEVERAGE ONTARIO? “We need a strong organization that’s going to speak on behalf of all processors, whether they’re small, medium or large, whether they’re in dairy, chicken processing, wine or craft beer, that can speak to the macro issues; to make sure that the government doesn’t put in place impediments to the future success of the industry.” As the economy adjusts and the automotive industry continues to decline, the province’s food and beverage industry continues to grow and expand. We can all raise a glass of wine to that.
ROAD TO SUCCESS PERTH ENVIRONMENTAL: BREATHING NEW LIFE INTO FOOD WASTE Ten years after Glenn Nafziger began pork farming, he decided to branch out. In 1990, he bought a sewage truck and started providing septic removal services, and Perth Environmental (www.PerthEnvironmental.com) was born. Based in Brunner, Ontario, the company grew from one truck to eight trucks and moved from septic services to providing collection and disposal service to the food and beverage sector. With a growing fleet of six vac trailers, two tank trucks and a bulk trailer, Perth Environmental can offer disposal options for all types of waste generated by food and beverage plants, namely sludges, grease interceptors, syrups, sugars, brewery waste, soda pop and high strength wastewater.
that is in operation today. Once it was perfected, the main building was transformed into a waste recycling facility. Now, Perth Environmental uses a process that is enormously beneficial in providing an alternative to land application and landfill disposal of food waste. It also provides a solution to high volume and capacity issues and the associated high costs. And it all started with a microwave and a turkey roaster.
Nafziger saw that a large volume of food waste meant environmentally friendly practices needed to be developed. Also, he saw a need to eliminate, or greatly reduce, land application, while addressing capacity issues. So Nafziger spent about a year researching, experimenting, designing, developing and consulting experts in order to develop a method to process waste sludge and recover the oil.
“The oil phase is further processed and refined, the solid phase is removed and shipped to a nearby bio-digester and used to produce electrical energy. The remaining water is then shipped to a fully licensed water treatment facility for final processing.”
There were no business models or industry standards to study. Nafziger was on his own. In 2007, his first step was to surround himself with a team that could provide direction. This team included his accountant, an engineer, a mechanical company, a business development representative, a chemist, and various representatives from laboratories. Armed with a microwave, a turkey cooker, a heat exchanger and a bench test centrifuge, he set about to determine the results of heating collected food waste, with the goal of custom designing a system for dealing with food waste removal and disposal. Nafziger hired an engineering firm to support the system design and to help determine the bio fuel potential of the end-product materials. It was labour intensive, as their output samples had to be sent to various labs in Canada and the United States to test nitrogen, moisture, FFA (Free Fatty Acid) and BTU (British Thermal Unit) levels. Nafziger brought his sons, Steven and Christopher, on board. Together, they decided to take the plunge and invest in Nafziger’s unique invention. The investment required was significant, but would prove to be revolutionary in food waste management. For over a year, Nafziger worked on constructing, re-constructing, and fine-tuning the process
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FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
So, how does it all work? Nafziger explains: “At our plant in Brunner, Ontario, we empty the truck into large tanks that are first heated then allowed to settle. In our tank, the settling has oils and fat on top, water in the middle and solids on the bottom.”
Now, not only does Perth Environmental save on disposal costs, it also generates income with the oil that is sold from the end process. Nafziger’s company also receives waste from other food waste haulers. Naturally, the greatest benefit of this process is the recycling aspect and the impact it has on the environment in terms of reducing land application and land fill disposal. Furthermore, the oil recovered during the process is sold to the North American Bio Diesel Industry. Nafziger’s work has benefited the food sector, especially processing plants, by providing safe and environmentally friendly “cradle to grave” solutions for waste disposal. The community has also benefitted in terms of employment. Nafziger currently has 12 employees and as the business continues to grow, plans are in place to increase that number. Now, 25 years after it started, Perth Environmental works with many of Ontario’s largest food-related companies, providing its services 24 hours a day, seven days a week. With his fleet of trucks they aim to provide excellent services while working to shrink the environmental footprint.
FAST FACTS, TRENDS AND RECENT TRANSACTIONS
(AS AT SEPTEMBER 30, 2015) Enterprise value/EBITDA multiples of selected food manufacturers, distributors, grocery and super centres ranged from 7.2 to 31.9 with a median of 11.1 as at September 30, 2015. Selected Food Manufacturers, Distributors, Grocery and Super Centres
Industry Classification
Last 12 Months Revenue (Millions)*
Enterprise Value (Millions)*
Loblaw Companies Limited (TSX:L)
Grocery Stores (Primary)
45,595.0
39,487.4
CAD
11.4
Alimentation Couche-Tard Inc. (TSX:ATD.B)
Grocery Stores (Primary)
44,578.6
38,058.4
CAD
15.6
Saputo, Inc. (TSX:SAP)
Food Products (Primary)
10,601.3
13,250.1
CAD
12.6
Empire Company Limited (TSX:EMP.A)
Grocery Stores (Primary)
24,070.7
9,551.3
CAD
7.7
Metro Inc. (TSX:MRU)
Grocery Stores (Primary)
12,102.1
10,182.5
CAD
11.4
Maple Leaf Foods Inc. (TSX:MFI)
Food Products (Primary)
3,215.1
2,691.3
CAD
31.9
Lassonde Industries Inc. (TSX:LAS.A)
Food Products (Primary)
1,348.9
1,429.9
CAD
9.9
High Liner Foods Inc. (TSX:HLF)
Food Products (Primary)
1,321.1
916.3
CAD
9.0
Premium Brands Holdings Corporation (TSX:PBH)
Food Products (Primary)
1,353.2
1,125.6
CAD
12.4
SunOpta Inc. (TSX:SOY)
Food Products (Primary)
1,514.0
761.8
CAD
10.9
Clearwater Seafoods Incorporated (TSX:CLR)
Food Products (Primary)
445.7
903.9
CAD
10.9
Whole Foods Market, Inc (NasdaqGS:WFM)**
Food Retail
15,207.0
10,669.7
USD
7.5
Costco Wholesale Corporation (NasdaqGS:COST)**
Hypermarkets and Super Centers
116,199.0
63,490.7
USD
13.6
Wal-Mart Stores Inc. (NYSE:WMT)**
Hypermarkets and Super Centers
485,621.0
255,066.3
USD
7.2
Median *Source: Capital IQ
EV/ EBITDA*
11.1 **U.S. Public Company
DISCLAIMER: The information in this section has been provided by external sources and is subject to change. Fuller Landau LLP is not responsible for the accuracy, reliability or timeliness of the information supplied by external sources. Readers wishing to rely upon this information should consult directly with the source of the information.
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FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
SELECTED CANADIAN TRANSACTIONS Total Transaction Buyers/Investors Value ($ millions)
Announced Date
Target/Issuer
April 27, 2015
Prairie Meats
Not disclosed
Golden Opportunities Fund Inc.
Prairie Meats
May 21, 2015
Reiva Global
Not disclosed
Genius Properties
Reiva Global
May 25, 2015
Sun Valley Farms
Not disclosed
Houweling's Nurseries
Sun Valley Farms
July 23, 2015
Country Choice Organic Brand
Not disclosed
Nature's Path Foods
New Century Holdings, Inc.
August 4, 2015
Sunrise Growers
450 USD
SunOpta Inc.(TSX: SOY)*
Paine & Partners LLC
August 12, 2015
Niagara Natural Fruit Snack Company
7 USD
SunOpta Inc. (TSX: SOY)
Niagara Natural Fruit Snack Company
September 8, 2015
Expresco Foods Inc.
Premium Brands Holdings Corp.
Expresco Foods Inc.
October 5, 2015
Woolwich Dairy
Saputo Inc.
Woolwich Dairy
Not disclosed 80 USD
Sellers
* SunOpta is a Canadian public company. Sunrise Growers is a California based fruit processor.
SELECTED US TRANSACTIONS April 7, 2015
Kencraft
May 19, 2015
Daybrook Fisheries, Inc.
May 26, 2015
Applegate Farms LLC
June 9, 2015
Garden Fresh Salsa Company, Inc.
July 1, 2015
Cargill Pork, LLC
July 1, 2015
Meiomi Wine Brand
July 8, 2015
Kerr Concentrates, Inc.
July 13, 2015
Spartan Foods of America, Inc.
July 20, 2015
A&P Supermarkets
August 7, 2015
BBX Sweet Holdings
Kencraft
Oceana Group Ltd. (JSE: OCE)
Daybrook Fisheries, Inc.
775 USD
Hormel Foods Corporation (NYSE: HRL)
Stephen McDonnell; Applegate Investment Corporation
231 USD
Wm. Bolthouse Farms, Inc.
Garden Fresh Salsa Company, Inc.
Swift Pork Company
Cargill Meat Solutions Corporation
315 USD
Constellation Brands Inc. (NYSE: STZ)
Copper Cane Wines & Provisions
100 USD
Ingredion Incorporated (NYSE: INGR)
Kerr Concentrates, Inc.
B&G Foods Inc. (NYSE: BGS)
PNC Erieview Capital, Linsalata Capital Partners Fund V, L.P.
243 USD
Acme Markets Inc.
The Great Atlantic & Pacific Tea Company, and others
Wallaby Yogurt Company, Inc.
125 USD
The WhiteWave Foods Company (NYSE: WWAV)
Private family
August 12, 2015
Dave's Killer Bread
275 USD
Flowers Bakeries, LLC
Goode Partners LLC, Goode Seed Co-Investment, LLC and Dahl Family
September 3, 2015
Green Giant International, LLC and Le Sueur
765 USD
B&G Foods North America, Inc.
General Mills, Inc. (NYSE: GIS)
September 9, 2015
Alpine Valley Bread Company
120 USD
Flowers Bakeries, LLC
The Wood Family
224 USD
Spirit Realty Capital, Inc.
Haggen Operations Holdings, LLC
Walgreens
Rite Aid
September 15, 2015 Haggen Grocery Stores October 27, 2015
Rite Aid
Not disclosed 4,588 USD
1,450 USD
50 USD
17,200 USD
FOOD AND BEVERAGE NEWSLETTER FALL/WINTER 2015
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QUESTIONS? COMMENTS? Please contact our Marketing Director: MARLA CHANG 416-645-6572 mchang@fullerllp.com
OUR FOOD & BEVERAGE TEAM JONAS COHEN 416-645-6574 jcohen@fullerllp.com DAVID FILICE 416-645-6506 dfilice@fullerllp.com GORDON JESSUP 416-645-6508 gjessup@fullerllp.com JEFFREY MANDELL 416-645-6509 jmandell@fullerllp.com
OUR FOOD & BEVERAGE PRACTICE Fuller Landau LLP is a leading mid-sized accounting, tax and advisory firm. We are committed to helping owner-managers and entrepreneurs build value and grow their business. We are uniquely positioned to do just that because, as business advisors and entrepreneurs ourselves, we know first-hand what it takes to meet those challenges and succeed in any business environment. We know that being in business within the food & beverage industry presents a unique set of challenges: customers’ tastes and needs are constantly changing, margins are under pressure, and inventory and logistics need to be managed effectively. Our team has the expertise and experience to advise on a wide range of business issues.
ELLIS ORLAN 416-645-6568 eorlan@fullerllp.com MONIKA PIZON 416-645-6537 mpizon@fullerllp.com BRUCE ROHER 416-645-6526 broher@fullerllp.com ANDY YAP 416-645-6536 ayap@fullerllp.com
FULLER LANDAU LLP 151 Bloor Street West 12th Floor Toronto, Ontario Canada M5S 1S4 www.fullerllp.com