Know exactly what to verify before buying a co-packer — from FDA inspection records and SQF certifications to equipment condition and customer contract concentration.
Find Food Manufacturing & Co-Packing Acquisition TargetsAcquiring a food manufacturing or co-packing business requires scrutiny beyond standard financial review. Buyers must assess FDA and USDA compliance history, food safety certification status, specialized equipment condition, and customer concentration risk. This guide provides a phase-by-phase framework for lower middle market deals in the $1M–$5M revenue range.
Verify the target's full regulatory history, active certifications, and audit records. Non-compliance issues discovered post-close can trigger facility shutdowns, recall liability, and costly remediation.
Request all FDA establishment inspection reports, 483 observation letters, and any USDA audit findings from the past five years. Confirm no open warning letters or pending enforcement actions exist.
Confirm current certification status, scope, and expiration dates. Review the last three third-party audit reports and any corrective action responses. Assess cost to maintain certifications post-acquisition.
Verify the facility has documented Preventive Controls plans, Food Defense plans, and supplier verification procedures compliant with FDA's Food Safety Modernization Act requirements.
Evaluate the quality, durability, and concentration of co-packing revenue. A single lost contract post-close can materially impair cash flow and reduce enterprise value overnight.
Map revenue by customer for the trailing 36 months. Flag any client exceeding 30% of revenue. Review contract durations, volume commitments, renewal clauses, and termination-for-convenience provisions.
Analyze co-packing agreements for commodity ingredient cost pass-through mechanisms. Fixed-price contracts without escalation clauses expose buyers to margin compression during commodity price spikes.
Request a list of prospects, recent RFQs won or lost, and any signed letters of intent with new clients. Assess whether new business development is owner-dependent or team-driven.
Evaluate the physical plant, equipment condition, and organizational depth. Hidden capital expenditure needs and owner-dependent operations are the most common deal-killers in food manufacturing acquisitions.
Commission an independent equipment appraisal covering age, condition, remaining useful life, and replacement cost. Prioritize filling lines, retort systems, cold chain, or any specialized processing assets central to production.
Inspect refrigeration systems, sanitation infrastructure, wastewater compliance, and facility layout. Identify deferred maintenance and estimate near-term capital expenditure requirements before finalizing offer price.
Identify which production knowledge, formulations, and customer relationships reside solely with the owner. Assess whether a trained middle management layer exists and whether SOPs are documented and transferable.
Verify the Food Manufacturing & Co-Packing acquisition qualifies for SBA financing, the purchase price is supportable by the verified cash flow, and the deal structure protects the buyer's downside.
Confirm the Food Manufacturing & Co-Packing meets SBA 7(a) eligibility requirements: the business is for-profit, U.S.-based, within SBA size standards, and the buyer meets personal financial requirements. Some industries have specific SBA restrictions — verify before LOI.
Model verified normalized EBITDA against projected SBA loan payments at current rates. A $1M SBA 7(a) loan at 10.5% over 10 years costs approximately $13,000/month. The Food Manufacturing & Co-Packing must generate at least 1.25x debt service coverage after a market-rate manager salary to pass underwriting.
Confirm the seller note is properly subordinated to the SBA loan and goes on 24-month standby as required by SBA rules. If an earnout is included, define exact measurement metrics, time period, and dispute resolution process before signing the purchase agreement.
Before signing a Letter of Intent, request these documents from the seller. Missing or incomplete items are a red flag — not a reason to proceed without them.
Lower middle market food co-packers typically trade at 3x–5.5x EBITDA. Businesses with diversified contracts, current SQF or BRC certifications, and clean FDA history command the higher end of that range.
Yes. SBA 7(a) loans are commonly used for food manufacturing acquisitions. Buyers typically contribute 10–20% equity, with the SBA loan covering up to 90% of the purchase price, sometimes supplemented by a seller note.
Certifications like SQF and BRC are issued to a specific facility and operator. After a change of ownership, buyers must typically undergo a recertification audit within a defined period — usually within 60–90 days of close.
Customer concentration is the most common value destroyer. If one CPG brand represents more than 35–40% of co-packing revenue and exits post-close, it can eliminate a significant portion of EBITDA immediately.
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