24 Jan Food & Beverage Industry Update – Q4 2019
Merger and Acquisition (M&A) activity among food & beverage (F&B) industry participants in North America maintained a reasonably robust pace in 2019 with over 300 completed transactions, achieving a level roughly in line with 2018 performance. At the same time, the aggregate value of deals closed in 2019 dropped significantly to just over $14 billion, as compared to just over $35 billion in 2018 and approximately twice that amount in 2017. This follows a trend of fewer blockbuster transactions in which mega strategics traditionally pursued competing and/or complimentary product lines aimed at consolidation, expanding category market share, and dominating retailers’ shelf space.
For many of the large consolidators of years past, the current focus has shifted from market share expansion to optimizing previous acquisitions and pursuing investments in legacy brands and on-trend alternatives (e.g., better-for-you foods). These better-for-you foods are generally natural/organic, minimally processed, and plant-based with a focus on the consumer that is pursuing a healthier, more active lifestyle. M&A activity within the F&B industry is increasingly attributable to several prevailing themes, including (i) divestitures of non-core brands and product lines in order to reshape portfolios and focus resources on traditional core competencies, and (ii) pursuit of disruptive acquisitions in areas that appeal to growing consumer preference for healthy beverages, snacks and meals that fall within the better-for-you category. Significant divestiture transactions in 2019 included (i) Kellogg’s sale of its cookies and fruit snacks business to Ferrero International (makers of Nutella) in July, 2019 for approximately $1.3 billion, and (ii) the sale by Campbell Soup of its Arnott’s Biscuits division to financial buyer KKR in August, 2019 for $2.2 billion. As for transactions of a more niche variety that fit the healthy, better-for-you description, there were numerous
examples, with healthy snacks and beverages accounting for the majority. Examples included (i) PepsiCo’s announced acquisition of BFY (Better For You Brands), maker of PopCorners and Rice Rounds, in December, 2019, (ii) Hostess Brands’ announced acquisition of Voortman Cookies in December, 2019 for $320 million, (iii) Hershey’s acquisition in September, 2019 of ONE brands (nutrition bar maker) for just under $400 million, (iv) Atkins Nutritionals acquisition of nutritional snack company Quest Nutrition for $1.0 billion in August, 2019, and (v) Coca Cola’s September, 2019 acquisition of Italian mineral water and sparkling beverage company Lurisia for $97 million.
So, does an environment in which larger strategic acquirers are more focused on rebalancing current portfolios and less on growth via acquisition equate to a softer market for potential sellers of F&B companies? The answer is generally “no”. Whatever pull back occurred among strategic buyers in 2019 was effectively offset by an escalation in transaction demand on the part of financial sponsors (e.g., private equity funds), which represent a massive and growing pool of investable liquidity. KKR’s $2.2 billion acquisition of Arnott’s Biscuits from Campbell Soup, mentioned previously, is a prime example of private equity’s interest in the F&B sector. Investor interest in F&B targets in 2019 was enhanced by dynamics that included (i) less competition from more internally focused traditional strategic buyers, and (ii) given concerns about a potential economic slowdown, the desire to invest in more defensive, less cyclical industries such as F&B. With relative economic stability, receptive capital markets and early signals of lessening trade tensions as we head into 2020, we anticipate that the drivers of M&A activity in the F&B industry in 2019 will continue to support a robust deal pace in the coming year.
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