Company Overview
The Buyer was a multi-location bakery with distribution into groceries, restaurants, and foodservice.
The Company sought to geographically diversify its sales with greater penetration into existing markets and customers.
The Target was a $1.2B North American operation of a global company looking to carve out an underperforming unit. Target had 11 production facilities across North America and a diversified portfolio of products, sales channels, and customers.
Engagement Overview
A successful acquisition would greatly expand the Company’s footprint and more than double total sales.
Target would have required a restructuring of operations and heavily consume the limited management bandwidth for the foreseeable future.
The Company retained Fort Dearborn to evaluate the financial impact of a successful transaction and determine the appropriate financing structure, the target valuation, and communicate with the investment bank.
FDP reviewed and valued the forecasted cash flows of Target and reviewed recent comparable transactions and trading multiples for comparable public companies.
FDP prepared a financial forecast for the combined Buyer and Target, including additional debt, purchase price accounting, and an assessment of Target’s operations and synergistic value to the Company.
Upon review of Target’s business and financial statements, FDP concluded that Target was severely impacted by COVID-19, and Target’s ownership group was overly optimistic regarding its ability to restore existing sales and return to profitable growth.
Results
FDP advised management that the acquisition was a highly risky endeavor that could put the Company’s financial health at risk.
The acquisition would require significant management resources and possibly significant restructuring activities on underperforming locations. The overall health of Target was fundamentally misaligned with the acquisition asking price.
While the Buyer did not win the auction process, it likely avoided overpaying for a distressed asset which would have consumed management’s time for many years.