Enhancing Company Value

Presentation to the Annual Conference of theFood Processing Suppliers Association

Stuart M. MossManaging Director

IRVINE • SAN DIEGO • SALT LAKE CITY • TAMPA

2

1. Introduction

2. Tangible Benefits of Enhancing Value

3. Developing Value-Enhancing Strategies

Table of Contents

Introduction

§ Businesses $10 - $100 MM

§ Value-enhancing strategies

§ Business valuation

§ Acquisitions & divestitures (M&A)

Focus

§ Food processors

§ Food machinery suppliers

§ Ingredient suppliers

§ ProcessExpo exhibitors

Industry Involvement

MISAMeat Industry Suppliers Alliance

§ Equipment suppliers

§ Ingredients suppliers

§ Consumables suppliers

§ Service suppliers

Suppliers

§ Private business owners

§ Corporate executives

§ Division Management

§ Consultants

RolesIn

sigh

ts

EnhancingValue-- OperationalBenefits

1st -- Stronger Competitive Position• Industry continues to evolve

• Customer changes

• Competitor’s moves

• Industry “winners” will:

• Devote more resources to organic growth

• Be more attractive to acquisition/alliance targets

• Maintain an operational cushion to survive

unexpected bumps

2nd -- Easier Access to Capital• Remains inexpensive

• More accessible for stronger companies

• To fund growth

• To further improve competitive position

• To manage bumps

'11 '12 '13 '14 '15 '16 '17 '18

MeatProcessingEquipmentRevenue(Global)

42%

EnhancingValue-- TransitionalBenefits

Every private business owner will eventually exit their company• Hand over to Family

• Sell to outsiders

Objective of owners anticipating a family transition• Implement value-enhancing strategies

• Establish the strongest possible competitive position

Absentee Ownership

Sale / Gift to Family

Strongest Competitive Position

The odds are against a successful family transition• 70% of family businesses do not survive the 2nd generation

• 88% do not survive the 3rd generation

EnhancingValue-- TransitionalBenefits(cont.)

Various ways to transition businesses outside family

Enhancing value enables owners to dictate terms• Whether objective is operational or transitional benefits

• More control over where and when to transition

Highest Business Valuation

Different objective for current ownership• Implement value-enhancing strategies

• Create the highest short-term business valuation

Sale to Third Party

MBO or ESOP

Licensing or Strategic Partnership

Restructuring / Bankruptcy

When to Enhance Value

Be PreparedYour Timing vs. Market Timing

Low Customer & Vendor Concentration

Consistent Financial Performance Competitive

Differentiation

Revenue & Growth > Industry Average

OperationalEfficiency

Strong Financial Performance

Protected IP

No Legal or Environmental Issues

Experienced Management Team

Solid Business Systems

Value-EnhancingStrategies

Strategies should focus on Value Drivers impacting a company’s

ability to realize its Operational or Transitional benefits

Operational Value-Drivers Structural Value-Drivers

Robust Business Intelligence System

9

1. Introduction

2. Tangible Benefits of Enhancing Value

3. Developing Value-Enhancing Strategies

Table of Contents

CaseStudy:ProcessedMeatIndustry

Increasing Consumer Demand• Growing, aging population

• Modest economic recovery

• Increasing demand for:

§ Convenience foods

§ Ethnic foods

CA

GR

Pressure on Food Processors• Food safety

• Raw material prices

• Price & delivery demands

Consumption Growth 2013-18 (U.S.)

0%

5%

10%

15%

20%

25%

'08 '09 '10 11 '12 '13

Gross Margin of Top 25 USA Meat Manufacturers

Food Processor Imperatives• Create new value-added products

• Address operating challenges:

§ Internal efficiency vs. co-packing flexibility

§ Retaining skilled workers

CaseStudy:ProcessedMeatIndustry(cont.)

Opportunity for Meat Industry Suppliers• Empathize with customers

• Address unmet needs

Changing Competitive Landscape• Current suppliers broadening offerings

§ R&D

§ Acquisition or Teaming

• Threat of new processing equipment entrants

§ Meat segment growing 2x overall industry

§ Largest market is USA$

Bill

ions

18%

Meat Industry Supplier Imperative• Develop value-enhancing strategies

• Focus on key value drivers

• Utilize most appropriate strategic frameworks

Strategic Frameworks

Supplier Power: Low- Easy availability of raw

materials- Fragmented raw material

supplier base

Competitive Intensity: Medium

+ Concentration of equipment suppliers

+ Significant investment in worldwide capabilities to improve technology & increase revenues

+ High exit barriers- Attractive industry growth- Strategic alliances exist

New Entry Threat: Medium- High capital requirement- Established relationships with

Large & Mid-Sized processors+ Possible expansion from other

food equipment segments

Buyer Power: Medium-Far more buyers than equipment suppliers+Large buyers = 30-50% of lines+Competitive & customer pressures raise buyers’ equipment requirements

Threat of Substitutes: Low- Manual processes less viable- Cheap knock-offs not

acceptable to processors+ Used equipment available

Industry Attractiveness framework for equipment manufacturers

currently outside processed meat industry

BowlCho

pper

Mixer/Blender

Macerator

Injectors

Emulsifier

Tend

erize

r

Grinder

Massager

Dicer

Filler

Grinder(In-Line)

Linker

Inspectio

n

Clipper

Form

er/Deposito

r

Smokehou

se/Coo

ker

Co-Extrusio

n

Slicing

Checkw

eigher

Conveyors

De-nesters

Packaging

CompetitorA

CompetitorB

Competitor C

CompetitorD

CompetitorE

CompetitorF

CompetitorG

CompetitorH

Strategic Frameworks (cont.)

Mapping framework for describing how broadly existing suppliers

compete (scope of supply, food segments, geographies)

Purchase Criteria

Priorities Customer Segment A Relative Ranking

1st Machine uptime Comparable

2nd First pass quality Better

3rd Machine throughput Worse

44h Life cycle cost Better

5th Ease of operation Comparable

6th Field service support Worse

Differentiation framework comparing how well relevant suppliers

meet the key purchase criteria within various customer segments

Strategic Frameworks (cont.)

Competitive Advantage

Competitive Advantage framework to determine what internal processes,

IP, or capabilities can create and sustain key differentiators

Strategic Frameworks (cont.)

WrapUp

Consider Variety of Strategic Frameworks

Prepare to Take Advantage of Opportunities

Enhancing Value Creates Tangible Benefits“Control your own destiny, or someone

else will.”

Jack Welch

Stuart M. Moss smoss@keystone-cap.com

Office: 949-486-8515Mobile: 714-412-0880