What M&A trends say about the future of food and beverage
- Food and beverage M&A in the third quarter showed more interest in a few categories: sauces and seasonings, grains and baked foods and coffee, according to a recent report from SDR Ventures.
- Private equity will remain a major player in food and beverage M&A, but the report predicts that this group of investors will likely invest in more mature, consolidated segments where they may be more competitive against major manufacturers.
- Categories to watch for M&A going forward in the report include energy drinks, as well as food and agricultural inputs, which include natural flavors or efficient ways to grow and harvest protein.
Average deal values may have declined over the past year since there were so many megamergers in 2015. But the industry is still ripe for acquisitions and investments in fast-growing small and mid-sized companies.
SDR Ventures recognized sauces and seasonings as one major trend among food industry M&A, supported by transactions like ConAgra's acquisition of Frontera Foods and B&G Foods' purchase of the spices and seasonings business of ACH Food Companies. The industry saw similar transactions in previous quarters, such as McCormick’s acquisition of Botanical Food Company, owner of the Garden Gourmet brand of chilled packaged herbs.
Startups are also focusing on cooking sauces to provide more convenience to meal preparation and more easily introduce exotic international flavors, ranging from various Hispanic regions to Asian flavors like Thai. These companies could also become attractive acquisition targets for major manufacturers going forward.
Major manufacturers have spent the last several years focusing on cost-cutting and bottom-line improvements, which are still a priority. But those manufacturers have also recognized the need for more innovation and top-line growth to remain relevant and maintain investors’ confidence.
New product development and reformulations have played a role in boosting top-line performances, but more manufacturers recognize the potential that acquisitions and venture capital investments offer. This has led to the rapid adoption of dedicated VC arms among a wide range of major manufacturers, which could lead to increased M&A activity in the future.
- SDR Ventures Food and Beverage Report Q3 2016