An M&A perspective of the recent AM State of the Industry report
In June, Automatic Merchandiser released their 2023 State of the Industry report for vending and micro markets. There were several positive signs in that report, but sometimes, those of us in the merger and acquisitions business see things differently. Example– where the report talks about 8% of operators generating 49% of revenue – I see it as a positive. It’s a case of seeing things as “half empty” or “half full.”
Observation: Medium and small sized operators are thriving
The initial pessimistic “half empty” reaction that most people have when they read the statistic about 8% of operators generating 49%of revenue is, “My goodness, the big players control the industry.” By big players, I’m referring to the ones who are the most active buyers, such as Canteen, Aramark, InReach and large Canteen franchises, such as Five Star Refreshment Solutions – all of whom have impacted industry consolidation. These companies certainly own a big chunk of the $26 billion dollar vending and micro market industry.
From a more positive “half full” perspective, this means that despite all of the industry consolidation, 52% of the revenue – over $13 billion dollars a year, is divided among companies who do less than $10 million dollars a year in sales. Think about what that says for a minute. We have an amazingly diverse pool of operators – multi generational family businesses, daring entrepreneurial newcomers and established independent operators who are all enjoying a substantial piece of the vending and micro market pie. That is the sign of a healthy industry. Quite frankly, can you think of another industry where giant companies and small entities can co-exist and compete, side by side?
How will this impact M&A activity?
The medium sized companies, right along with the small operators, including startups, are able to not only compete with the big players, but actually seem to thrive amid the new landscape, which has experienced a tremendous amount of operator consolidation. With operators enjoying increasing success, the appetite for acquisitions among the bigger players will remain quite robust.
Impact of technology
The ability to compete is being driven largely by access to technology, such as smart markets. This AI equipped version of a micro market can essentially mitigate theft using weight sensors or video technology. Customers can touch and inspect their selection before they make a purchase. When they remove their items from the market and close the door, the transaction occurs.
There are now several active smart cooler/market companies in the US, which will only drive down the price of this powerful technology. Ultimately, I expect to see small operators accelerate the use of this equipment because of their willingness to invest in a micro market that can serve high traffic public locations. For workplaces, these markets will eliminate the fear of having to terminate or discipline a valuable employee because they didn’t pay for a candy bar.
A new class of operators
Note – the study showed the fastest growing segment of new accounts were locations with 50 to 100 employees. Perfect for a single cooler with an ambient temperature section. In the coming months, I expect to see the emergence of a new class of entrepreneurial operators who are using smart markets exclusively. Consider this: An operator who places 30 or 40 smart markets in a couple of years will have a very clean, attractive and sellable company – thanks to technology that allows for rapid growth and high revenue.
Observation: An increased commitment to theft mitigation
The report showed an increasing willingness by operators to invest in a more sophisticated approach to micro market theft mitigation last year. From all indications, the trend will continue this year, as operators begin to understand that taking a regular inventory isn’t enough.
Hiring a loss prevention employee jumped from 16% to 28% of operators. Working with a loss prevention consultant moved from 11% to 16%. While operators claim to have a shrink level of 3% to 4%, most industry experts think that number is wishful thinking.
What does this mean from an M&A standpoint
Anything that eliminates risk makes the industry’s active buyers sleep better at night. They are happy to pay more for that peace of mind and the knowledge that you have your micro market shrinkage level under control. If your company utilizes sophisticated AI security cameras in your micro markets, that investment will pay for itself many times over when you sell your company. Your 3% shrink rate will be provable and you will be seen as an operator who has shrinkage truly under control, a fact that enhances the value of your business.
Observation: Cashless payment and VMS continue to grow
In 2022, only 50% of the survey participants said that over 90% of their vending was equipped to accept cashless payment. In 2023, that number jumped to 68% and today, it is certainly closer to 80%.
Similarly, the use of Vending Management Systems moved to 81% in 2023 and is should be touching 90% when the 2024 report comes out next year.
In the world of M&A, this is more positive news
Anyone who plans to sell their company now or in the future, must be fully equipped with cashless payment systems and a VMS system with a major provider.
In addition to making the sale of business a much smoother process, the strong presence of cashless and the use of a solid VMS sends a clear message to buyers – “I am serious about my business, and I have run it the right way.”
Conclusion – It is a good time to be a vending and micro market operator. With plenty of active buyers, it is also a good time to sell your company, if the timing is right.
Buyers come to me and my company, VBB Advisors, because they know that I serve sellers who have thoroughly and thoughtfully considered their exit strategy with my help. That is the type of seller that you want to be – a seller who has their ducks in order, has taken steps to make their business as attractive as possible and a seller who values their employees enough to make a deal that everyone will feel good about.
Take that critical first step. That is often the toughest one to take.
Order our free 2024 Exit Strategy Planner. At the very least, it will provoke some thought, and this is a good time to think about your future.
Whatever your reasons are to sell your company - the timing, a sense of frustration, the desire to enjoy life or an interest in rewarding yourself for years of hard work – VBB Advisors can help you realize your goals.
I am Mike Kelner, the leading sell side intermediary in the convenience services industry. Let’s sit down and have a conversation. Use this appointment scheduler to set up a meeting with me.
Or – give me a call at 704-942-4621
