August 19, 2016

4 Most Important Food Safety Considerations for Private Equity Investors

When it comes to investments in Food & Beverage companies, in addition to Quality of Operations® Due Diligence analysis private equity firms should diligence critical elements of Food Safety Programs (Food Safety, Regulatory Compliance & Quality) at the target company.  Determining early on whether or not a target company is compliant with Food & Drug Administration  (FDA)  and other industry regulations is critical to mitigating downside risk. While no production facility is ever deemed “perfect,” it is important that investors consider gaps that exist in the target companies’ food safety programs. Also, it is critical to understand the potential liability and probability of a FDA audit, shutdown or mandatory product recall – either of which occurrences could dramatically impact an investment.  With the recent changes in regulations, and the advent of the Food Safety Modernization Act (a.k.a. FSMA), food safety diligence is more important than ever.

So, what should you look for?  Below we outline the four key areas we look at when conducting Food Safety Due Diligence:

Inherent Product and Ingredient Risk

Certain ingredients and processes are inherently more risky than others.  Whats more, approximately 15% of US food products are imported.  Ensuring that the target company has a robust understanding of ingredient and supply source risk is key.  In addition, FSMA has a special Foreign Supplier Verification Program (a.k.a. FSVP) which puts direct responsibility on US food manufacturers to perform disciplined assessments on their global suppliers and mandates they have plans to prevent contamination.  This is a real struggle for many small/mid sized companies – assessing this risk during diligence is key.

Robust Food Safety Programs

Make sure the company has strong food safety programs.  We recommend assessment of Good Manufacturing Practices (GMPs), assessing their compliance with GFSI initiatives (SQF, BRC, etc.) is also key.  Its important to note, just because a target is SQF or BRC certified, doesn’t mean they meet compliance requirements.  Any company can pass an audit, determining whether they truly live a food safety culture day in and day out, not just when an announced auditor is going to tour the factory is the only way to maximize risk prevention.

Labeling Compliance

We always recommend conducting a labeling review as part of your Food Safety Due Diligence process.  Many companies, especially with the advent of recent snacking and health food trends, have new niche products, and lots of labeling claims like healthy, natural, GMO, gluten free, etc.  Significant liability exists if the company can’t actual back up those claims.  In addition, questions like – Do you have allergens properly labeled? Are you following all the FDA and USDA guidelines?

Management Commitment

Is the target management focused on quality, or are they truly enthusiastic about food safety?  You want Senior Management’s positive food safety attitude to trickle down throughout the entire organization and deliver exceptional Food Safety Culture.  We always check to make sure all employees are empowered to make sure the product is safe.

Additional Resources:

How TriVista Can Help

  • TriVista’s Food Safety & Regulatory Compliance Practice  has a disciplined Food Safety Due Diligence process, developed exclusively for the Private Equity Community.  Click here to learn more.

About The Author

Jennifer Frankenberg is a Director in TriVista’s Food, Beverage & Consumables Practice where she oversees TriVista’s Food Safety Due Diligence activities. Jennifer brings TriVista clients a strong combination of food safety, supply chain, operations, and risk management experience in the food and consumables space. Her expertise ranges from collaborating with regulatory agencies on issues such as recall activities and food-borne illness investigations to performing client plant inspections, ensuring regulatory compliance and high sanitation standards are in place. In addition, Jennifer is well versed in the sanitary  design of food processing equipment, and  has developed several robust recall and crisis management plans, as well as client tailored food safety and quality documentation. Given her background, Jennifer is  a valuable resource in supporting private equity investors with operational and food safety due diligence in the food and beverage space.


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