Manufacturing Due Diligence: Safeguarding Food M&A in India

India’s food processing industry, set to hit $389 billion in 2025 and $700 billion by 2030, presents vast M&A opportunities. Yet, with over 25,000 registered units and a fragmented unorganised sector, thorough manufacturing due diligence is essential. It helps uncover production risks, validate facility compliance, and ensures informed, strategic deal evaluation.

Why Manufacturing Due Diligence Matters in Food M&A

In India’s food sector, manufacturing due diligence goes beyond financial checks, as it exposes critical production risks and compliance gaps. Therefore, it’s vital for investors in processed foods, beverages, and cold-chain segments. Furthermore, manufacturing due diligence directly shapes valuation and integration plans. It also drives long-term success by assessing a facility’s true operational health.

1. Unique Aspects of Manufacturing Due Diligence in Food M&A

Manufacturing due diligence in the food industry requires a specialised approach to ensure facility compliance and operational integrity. Key focus areas include:

1. Ingredient Traceability and Sourcing Validation:Robust manufacturing due diligence not only verifies the supply chain from farm to factory but also ensures traceability at each step. Moreover, auditors examine sourcing records, certifications, and supplier audit reports to confirm ethical practices, compliance with pesticide residue limits, and the absence of prohibited substances thereby mitigating adulteration risks.
2. HACCP, GMP, FSSAI, and State FDA Compliance: Compliance with Hazard Analysis and Critical Control Points (HACCP), Good Manufacturing Practices (GMP), Food Safety and Standards Authority of India (FSSAI) mandates, and State FDA regulations is non-negotiable. Manufacturing due diligences audits licenses, past inspection scores, and corrective action plans to ensure adherence and identify potential liabilities.
3. Facility Layout Adherence to Food Safety Zones: Effective manufacturing due diligence also assesses the plant’s layout to ensure proper segregation of raw materials, processing, packaging, and storage zones. In addition, distinct dry, wet, and cold zones help prevent cross-contamination and maintain optimal environmental conditions for various food products.
4. Allergen Segregation and Labeling Systems: With rising food allergy concerns, manufacturing due diligence closely reviews allergen protocols.Specifically, it checks allergen identification, ensures segregation during processing, and verifies accurate labeling.This includes verifying dedicated production lines, cleaning validation, and employee training to ensure consumer safety.
5. Workforce Hygiene Protocols and SOP Documentation: A well-trained workforce is critical. Manufacturing due diligence reviews SOPs for hygiene, sanitation, and equipment cleaning.Moreover, it also observes on-site practices to ensure consistency across all processes.
6. Calibration of Machinery and Shelf-Life Consistency: Accurate machinery calibration ensures food safety and product consistency. Manufacturing due diligence checks SOPs for hygiene and sanitation. Additionally, it inspects equipment cleaning and on-site practices to ensure consistency throughout operations.

2. Recent Developments & Regulatory Trends (as of July 2025)

The regulatory landscape for India’s food industry evolves rapidly, impacting facility compliance and manufacturing due diligences. Key updates include:

1. AI-Driven Inspection Protocols by FSSAI: FSSAI has begun implementing AI-driven inspection tools to enhance efficiency and precision. As a result, manufacturing due diligence now involves assessing a target’s readiness for these inspections. In addition, the tools use data analytics to detect anomalies, thereby ensuring compliance with evolving standards.
2. ESG-Linked Disclosures under BRSR: With BRSR effective FY 2024–25, manufacturing due diligence now covers ESG factors waste, water use, worker safety, and sourcing ethics impacting deal value.
3. GST Input Credit for Capital Assets:The Finance Act 2025 clarifies ITC on manufacturing assets. Consequently, manufacturing due diligence thoroughly checks these claims to identify compliance gaps. Moreover, it helps optimise tax structures in Food M&A.
   

3. Key Red Flags and Production Risks

Vigilant manufacturing due diligence uncovers critical red flags that could jeopardise acquisitions or lead to post-deal costs. Watch for:

1. Incomplete Batch Traceability: Inadequate systems for tracking ingredients and finished products by batch number pose serious recall risks. Moreover, they signal poor quality control, which is a major concern during deal evaluation.
2. Poorly Maintained Processing Equipment: Signs like equipment neglect, breakdowns, or missed maintenance signal high costs and safety risks key red flags in manufacturing due diligence.
3. Violations or Notices from Food Safety Authorities: Repeated FSSAI or State FDA notices, penalties, or unresolved issues clearly indicate systemic compliance failures. As a result, they serve as critical red flags during deal evaluation in Food M&A.
4. Non-Standardised Production Across Units: Inconsistent processes or quality across multiple facilities complicates scalability and integration, a key focus of manufacturing due diligence.
5. Dependency on Outdated or Manual Logs: Reliance on paper-based or manual systems for production, hygiene, or inventory tracking often introduces errors and inefficiencies. Consequently, this reliance complicates manufacturing due diligence. Furthermore, it raises concerns about data accuracy and operational maturity.

• Strategic Implications for Investors and Acquirers

Insights from manufacturing due diligence shape the strategic trajectory of Food M&A:

1. Valuation Adjustments: Identified production risks or compliance gaps such as outdated equipment or regulatory violations often trigger price adjustments or deferred payments. Moreover, these findings can lead to revised deal terms, reflecting the true operational and compliance risks in Food M&A.
2. Integration Timelines: Manufacturing due diligence highlights complexities in aligning processes or upgrading facilities, enabling realistic integration planning.
3. CapEx Budgeting for Facility Upgrades:Due diligence often identifies the need for new machinery, safety systems, or structural changes. As a result, it informs more accurate capital expenditure forecasts. Furthermore, it helps align investment plans with operational realities.
4. Staff Retraining or Restructuring: Gaps in workforce hygiene or operational skills, revealed during due diligence, necessitate retraining programs or organisational changes.
5. IP Protection for Proprietary Processes:For targets with unique formulations or techniques, manufacturing due diligence carefully evaluates intellectual property protections. This ensures a smooth transfer of knowledge and, moreover, supports scalability post-acquisition.
   

Illustrative Examples

Case 1: Packaged Snack Company Acquisition Derailed

A conglomerate stopped acquiring a snack firm after manufacturing due diligence uncovered FSSAI oil reuse violations, absent pest control SOPs, and weak batch traceability.

The risks of recalls, penalties, and brand damage proved too great highlighting how critical operational checks are in Food M&A.

Case 2: Beverage Facility Passes M&A Due Diligence

An international beverage giant secured a successful acquisition after manufacturing due diligence validated smart packaging, real-time monitoring, and batch-level traceability.

These capabilities enabled smooth integration and scalable growth, proving strategic alignment.

Conclusion

For senior leaders navigating Food M&A in India, strong manufacturing due diligence is key to success. It uncovers hidden production risks and validates facility compliance. This process offers strategic clarity for valuation, integration, and long-term growth. By prioritising thorough due diligence, investors reduce liabilities, optimise CapEx, and ensure operational excellence in India’s vibrant food industry.

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