IJCA - Volume 3 - Flipbook - Page 51
2024 | Volume 3, Issue 1
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Food establishment internal due diligence (sell-side)
serves the purpose of providing a true and accurate
portrayal of the company’s food safety practices,
programs, and culture. This ensures that everything is
in order and allows the establishment to demonstrate
that it is a good buy. Internal due diligence enables
the food establishment to prepare for investor due
diligence, but it will only be helpful if it is objective
and thorough. Do not try to hide or gloss over
anything; a good investor due diligence will uncover
it and it could disrupt the entire transaction. Rather,
by being diligent and proactively preparing prior to
any transaction, a food company can demonstrate
its readiness for investment, build credibility with
potential investors, and facilitate a smoother and
more efficient due diligence process. Going through
the process also enables the company to ensure it
has all the information, records, and documentation
that will be requested, and have them readily available
for the potential buyer. It provides the ability to identify
and address potential issues, discrepancies, or gaps
in advance, then proactively mitigate risks, resolve
concerns, and strengthen the position of the company.
what makes a company a quality producer, what
should be looked for in the document review and tour,
and what questions to ask. For example, there can be
unexpected capital expenditures related to an aging
food plant that can lead to financial and reputational
risks due to recalls.
Even beyond proving anything to a potential buyer, a
due diligence can make the business better, as the
review enables a company to ensure it is compliant
with all applicable regulations and standards, update
any lagging practices, and make any corrections
before issues arise. Conducting the pre-investment
due diligence demonstrates a commitment to food
safety and responsible business practices, putting the
company right where it needs to be to be considered
investment grade.
Employing an external consultant. Determining the
advisability of employing an external consultant to
conduct or assist with your food safety due diligence
can be answered by one simple question for each
stakeholder category:
Investor due diligence (buy-side) plays a critical role
in the investment process of a food establishment.
While the internal due diligence conducted by the
food establishment can enhance its attractiveness
to potential investors, investor due diligence is
more than a benefit—it is a necessity. This diligence,
especially regarding food safety, is essential due to the
many areas of potential risk inherent in investing in a
food company. It requires special attention focused
on both the company’s food safety practices and
regulatory compliance to ensure there are no surprises
or “red flags” discovered after the investment is made.
To that end, the food safety due diligence should
encompass various components, including document
review, facility tours, management and worker
interviews, and potentially, product sampling. But,
above all, those doing the due diligence need to
understand exactly what is required for food safety,
Food safety incidents can have significant financial
repercussions, including the cost of recalls, legal
fees, and a decline in sales. By assessing food
safety practices before investing, investors can
better understand the potential financial impact on
their investment. Developing an in-depth, holistic
assessment of all hazards and risks, along with an
understanding of the food company’s preparedness
for and management of these, is critical to making a
sound investment.
A robust due diligence process will allow the investor
to make an informed decision about a potential
purchase. Understanding the risk and any necessary
future investment will help the investor plan for
capital expenditure and can even be leveraged during
negotiations.
For food establishments: Can you look at your
facility and processes with critical eyes and be
completely impartial in evaluating your food safety?
For investors: Do you have a full understanding
of and expertise in food safety, its risks and
regulations?
Working with a qualified food safety consultant who
has experience in due diligence will bring a new set of
expert eyes into the operation to see gaps that can be
easily overlooked by an internal team and unrealized
by a financially focused due diligence team. It enables
a more critical look at the processes and operations
from an independent, objective perspective.
Additionally, an experienced food safety consultant
will have worked with many food companies in
various industry segments, enabling them to bring
fresh insights on potential food safety risks and
opportunities for risk management. Their expertise
will enable them to compare the company’s food
safety performance against industry benchmarks and
best practices to help the investor gauge the relative
strength of the company’s food safety program.
