The past year has been a busy one for M&A activity in the Food and Beverage industry.
Fuelled by changing consumer tastes driven by younger consumers, defensive acquisition plays from mature and established players, and the race to acquire innovative health conscious food companies, M&A activity has been strong.
At Clearwater International, we recorded a total of 41 deals in the global food ingredients market for 2015. For the first seven months of 2016, 20 deals have closed. This indicates that strong deal volumes are set to continue.
As a result of the aforementioned trends, M&A volume is expected to remain strong in the near future, particularly for innovative health focused companies.
Major deal drivers
Changing tastes of younger consumers
Health conscious and nutritionally aware millennials are driving huge changes in consumer preferences in the F&B sector. Consumers are moving away from prepackaged, artificial foods with an increasing demand for natural, organic and simple ingredients in developed countries. Demand from developing countries is also beginning to shift and this will drive further growth for companies producing these foodstuffs. As companies look to make their products healthier, innovative food ingredient companies are also in demand.
Big player consolidation
Furthermore, the food ingredients sector remains highly fragmented, with the top three F&B companies in most markets typically controlling around 25% of the market.
One of the major deals in the market over the past year was the €56bn takeover by Heinz of Kraft Foods to create Kraft Heinz, backed by Warren Buffet’s Berkshire Hathaway and 3G Capital.
As consumers move away from packaged foods, larger and more mature F&B companies are turning to M&A for scale in order to drive synergies to increase profits and capture market share. The Kraft Heinz deal is a perfect example of this strategy as the combined company expects to achieve €1.35bn in annual cost savings by the end of 2017.
Larger companies’ appetite for start-up food manufacturers
Scale and cost cutting can only go so far when companies are looking to increase profitability. For this reason, larger players in the market are looking to acquire health conscious and innovative start-ups to grow. This drive to acquire these high growth, organic, gluten-free and natural F&B companies has resulted in high valuation multiples for these companies as larger players scramble for limited deals.
Private equity and venture capital
Private equity and venture capital have been highly active in mid market F&B deals, attracted by high growth and the potential for innovation in the sector.
In particular there has been an emergence of specialised, F&B focused private equity and venture capital funds including Kainos Capital and Edible Ventures. Kainos Capital’s portfolio includes branded nutritional business Healthy Delights and Slimfast, the iconic meal replacement and weight loss brand. Edible Ventures invest in high growth F&B companies and their portfolio includes Maple, a nutritional water product, and Deep River Snacks, a healthy snack company.
Selected F&B deals 2016
|Target||Target country||Description||Acquirer||Acquirer country|
|52% stake in Santa Rita Harinas||Spain||Production and marketing of flours and cooking ingredients||Ebro Foods SA||Spain|
|Coop Norge Kaffe AS||Norway||Manufacturer and retailer of coffee||Jacobs Douwe Egberts B.V.||Netherlands|
|Extrakt Chemie Dr. Bruno Stellmach GmbH & Co. KG||Germany||Producer of specialty ingredient extracts||Frutarom Industries Ltd||Israel|
|25% stake in Martinavarro Ltd||Spain||Grows, packs, supplies, and exports citrus fruits and fresh vegetables||Miura Private Equity||Spain|
|Nutricafés, S.A.||Portugal||Production and distribution of roasted coffee||Massimo Zanetti (Lavazza)||Italy|
|Rynkeby Foods A/S||Denmark||Juice manufacturer||Eckes-Granini Limited||Germany|
|Novo Dia Cafés Lda||Portugal||Roasts, processes, and markets coffee and related products||NewCoffee Company||Portugal|
|Novadelta Suisse LLC||Switzerland||Large distribution client portfolio in Switzerland||Delta Cafés||Portugal|
|Sosa Ingredients S.L.||Spain||Manufactures and distributes food ingredients||Meridia Capital||Spain|
|Discefa S.L.||Spain||Processing and distribution of frozen octopus||GED Capital and Oquendo Capital||Spain|
|Nutra Canada Inc.||Canada||Manufacturer of small fruit and vegetable extracts||DIANA Group SA||France|
|Teawolf LLC||US||Coffee, tea, vanilla and botanical extract||Doehler Group SE||Germany|
|J. M. Swank Company, Inc.||US||Food ingredient sourcing and distribution||Platinum Equity, LLC||US|
|American Fruits & Flavor LLC||US||Production and marketing of fruit flavours, juices, concentrates, natural sweeteners and other fruit-based products||Monster Beverage Corporation||US|
|Ramón Sabater, S.A.U.||Spain||Processing and distribution of paprika, spices and herbs||Portobello Capital Gestion, SGECR, S.A.||Spain|
|MedPalett AS||Norway||Specialist in food ingredients containing anthocyanins||Evonik Industries AG||Germany|
|FrieslandCampina Kievit BV's beverages vending activities||Netherlands||Food and beverage ingredients manufacturer||Barry Callebaut AG||Switzerland|
Based on defensive consolidation plays by large players in the F&B market, and the race to acquire innovative companies, we expect deal volumes to remain strong in the second half of 2016 and well into 2017. As the market consolidates we also expect to see the emergence of major new food and ingredient players in the medium term.