Food industry M&A deals dropped by 11% last year, study finds
- There were 527 M&A deals in the food space in 2018, which is an 11% decrease from the record number seen in 2017, according to a new report by The Food Institute.
- The largest portion of the deals (29.7%) took place in the manufacturing segment among food processors, followed by retailers and investment firms completing 16.6% and 13.9% of deals, respectively.
- Although the overall retail and supermarket sector saw increased activity last year, according to the report, "2018’s activity is beginning to reveal the start of an expected slowdown for the coming years, as consolidation, particularly in retail, becomes more difficult."
Although companies will increasingly prioritize growing their portfolios through acquiring local assets, it looks like the pace at which they're snapping up companies is slowing down. Last year was the second highest year for M&A in the last decade, but it was also the first decrease in the number of deals since 2015.
Manufacturers — excluding beverage producers — were the largest segment of the food space to participate in M&A, but the rate fell by 20% from 2017, according to The Food Institute's report.
Still, Food Institute President Brian Todd told Food Dive in an email that he expects to see high levels of M&A through 2019. Another report released this week by A.T. Kearney found that 88% of the more than 100 C-suite executives surveyed expected M&A in 2019 to be equal to or better than 2018 levels.
But the way M&A is executed may be about to change. Mergers and acquisitions are becoming less about the size of market share and more about market disruption, Todd said in an email.
"Food manufacturers are continuing to buy innovation on various fronts, looking to expand into new areas that entrepreneurs have forged into, and perhaps found a niche such as General Mills' acquisition of Blue Buffalo last fall," Todd told Food Dive.
In addition, legacy companies also will look to purchase key business components that they are missing, such as in digital, analytics, e-commerce and supply chain sectors. That could explain why some of this year's biggest deals included Coca-Cola's acquisition of U.K. coffeehouse purveyor Costa Coffee for $5.1 billion, PepsiCo’s $3.2 billion buy of SodaStream, Walmart’s $16 billion e-commerce addition of Flipkart and Nestlé $7.15 billion deal with Starbucks to sell the coffee chain's coffee and tea in grocery stores and other outlets.
While mega-deal mergers of CPGs weren't the name of the game this year, the uptick in investment in smaller businesses, as well as increased activity from investment firms and banks, serve to underscore how competitive the food space is becoming. It is no longer enough just to have millions of eyes on a brand. Now legacy companies need a brand that innovates and draws in new consumers. Accomplishing that through technology and innovation though can be difficult and costly.
"I expect more of the smaller chains and independent stores to seek deals with larger more efficient operators," Todd said. "And of course, don't forget Amazon's recent announcement it is looking at purchasing several regional grocery chains which has many of those firms asking how to get on that line.”
Investment firms are seeing this need for continued disruption and are snapping up promising startups, potentially in hopes of eventually selling them to larger manufacturers in the future. In an effort to avoid the middle man, CPGs have found incubators and accelerators to be lucrative sources of innovation. The Food Institute report notes that "many companies used accelerator programs and investment arms to purchase small or emerging companies in their field." General Mills' 301 Inc and Tyson Ventures were two specifically called out for their activity.
In addition to simply adding new products to their portfolios, CPG companies are likely going to be investing more heavily in new retail, packaging and equipment strategies looking forward in an effort to keep their products in front of customers and top of mind. Deals in the the retail sector, according to the report, increased almost 40% from 2017. The number of packaging and equipment supplier deals jumped from 16 in 2017 to 25 last year.
- The Food Institute Food Industry M&A Dips in 2018, Manufacturers Lead Activity