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M&A activity is expected to accelerate in 2025 as food and beverage companies reduce external distractions and place greater importance on transactions to grow their businesses.
Smaller add-on deals are expected to make up the lion’s share of M&A activity as companies increase their exposure to fast-growing, trendy categories such as premium, snacking, and health and wellness.
“We have seen an increase in M&A activity in the food and beverage CPG space over the past six months to a year,” Billy Roberts, senior food and beverage analyst at CoBank, said in an interview. “It will continue and grow and become a little more widespread by 2025.”
The report, published in November, showed the co-operative bank recorded an average of less than 500 transactions per quarter last year, a decline of almost 40% compared to the 2021-2023 period. However, previously cool trading conditions appear to be thawing, creating opportunities for CPG companies.
Interest rates have fallen, making it cheaper for companies to take on debt to finance deals. Many companies that borrowed billions of dollars to finance blockbuster deals over the past decade have paid off much of that debt and have healthier balance sheets. This will increase your chances of pulling the trigger on a larger acquisition.
Other factors make it more likely that a company will engage in a deal. After facing years of COVID-19 challenges, supply chain disruptions and high inflation, the situation has eased.
The improved environment comes as companies that previously relied on price increases to fuel growth find other ways to boost revenues and margins while dealing with inflation-weary consumers reluctant to pay more. This makes M&A a more attractive option.
“There is a gap in the portfolio,” said Brittany Quatrochi, an analyst at Edward Jones. “I think what we’re going to see is additional M&A, and we’re already starting to see that with this portfolio pruning and optimization.”
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‘Never say never’
Last year, General Mills announced it would sell its North American yogurt business, which includes the following brands: Yoplait Go-Gurt invested $2.1 billion to focus on fast-growing segments, including snacks and pet food. PepsiCo acquired Mexican-American food maker Siete Foods for $1.2 billion last October, increasing its exposure to ethnic foods and better-for-you products that complement less healthy snacks like Doritos and Cheetos.
But the biggest deal of 2024 was Mars’ $36 billion acquisition of Pringles maker Kellanova. This will transform the candy icon into a leading seller of chips, crackers and other snacks. Analysts said this year’s deal was unlikely to replicate the scale of the Mars-Kellanova deal.
Quattrocchi said, “It seems to be a difficult environment for large-scale M&A.” “Never say never, but I don’t think corporate America has anything like that in mind.”
Executives said they are keeping an eye on companies to acquire, but if they do make one, it will most likely be a smaller company.
“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.
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Provided by General Mills
Sean Connolly, CEO of Conagra Brands, maker of Slim Jim and Healthy Choice, said the Chicago-based company is focused on paying down debt from its $10.9 billion acquisition of frozen food maker Pinnacle Foods in 2018. Connolly would not discuss the acquisition further, pointing to Conagra’s acquisition of premium meat stick brand Fatty last summer.
Mondelēz International said in December that the maker of Oreo and Ritz crackers would prioritize smaller “additional” deals.
Mondelēz CEO Dirk Van de Put told Wall Street analysts in February that his snack company reviews 35 to 40 potential M&A targets at the beginning of each year and, if necessary, begins building relationships with smaller companies to build trust and rapport. I said I would. enterprise. The vast majority of them never lead to a deal.
A potential wild card for M&A beyond 2025 could come from the new Trump administration.
The president-elect appointed Robert Kennedy Jr. as Secretary of Health and Human Services, giving him broad authority over the FDA, which regulates about 80 percent of the U.S. food supply. There may be further uncertainty depending on how aggressively the Federal Trade Commission and the Department of Justice crack down on M&A under the new administration.
When Trump first took office, companies viewed him as hands-off. He is widely expected to be business-friendly again during his second term, at least compared to the Biden White House, but it is unclear by how much. If Trump becomes more aggressive, M&A activity may decline.
“It’s a difficult decision,” Roberts said. “It’s something we’ll have to watch very closely.”
