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Diving overview:
- According to CoBank, after a relatively quiet period in M&A in the food and beverage sector compared to previous years, activity appears to be gaining momentum due to changing consumer preferences, lower interest rates and management efforts to streamline portfolios.
- This year, there were an average of less than 500 transactions per quarter, a decline of almost 40% compared to the 2021 to 2023 period, the cooperative bank noted. However, previously cool trading conditions appear to be thawing and opportunities are being created in several areas.
- Management told analysts that it continues to monitor companies for acquisitions, but that any acquisitions would most likely be smaller companies. “I think what we’re focused on right now, and what we’re really seeing in the market, is there seems to be a greater availability of smaller assets that can enhance our growth,” said Jeffrey Harmening, CEO of General Mills. September.
Dive Insights:
Billy Roberts, senior food and beverage analyst at CoBank, who authored the report, said consumer interest in better-for-you snacks would increase M&A activity in the sector. Plant-based meat alternatives also include a number of smaller brands, with potential for consolidation likely due to the recent slow growth of the sector as a whole.
Additionally, smaller companies can become targets for larger CPG companies looking to merge with each other or make strategic transactions to build scale.
Roberts added that manufacturers are increasingly aligning their SKUs around the 80/20 principle (80% of revenue tends to come from one-fifth of the brands) and focusing attention on the more profitable 20%. This has led some companies to streamline their portfolios by selling products or brands that do not fit this strategy or create complexity in their supply chain.
“Not only do these acquisitions reduce some of the pressure to innovate on the brands’ R&D departments, but smaller deals are also generally more financially advantageous,” Roberts wrote. “In fact, some of our recent acquisitions have been smaller.”
Several bigger deals have occurred or been announced this year.
General Mills announced plans to sell its North American yogurt business to French companies Lactalis and Sodiaal for $2.1 billion as the cereal giant exits the dairy business. PepsiCo says it will acquire Mexican-American food manufacturer Siete Foods for $1.2 billion. And candy and gum giant Mars agreed to buy snack maker Kellanova for $35.9 billion. It’s the largest food and beverage deal since Kraft Heinz’s $45 billion merger in 2015.
However, most activities were small-scale. Campbell Soup sold its Pop Secret popcorn for an undisclosed sum, and Danone offered to acquire kefir maker Lifeway Foods for $283 million. J&J Snack Foods, maker of Dippin’ Dots, acquired the Thinsters cookie brand from organic and natural products maker Hain Celestial, and Conagra Brands acquired the maker of Fatty Smoked Meat Sticks.
