Large food CPG companies are eager to put their cash to work through M&A, but executives said they’re currently being selective about which assets they target — prioritizing transactions that build on their exposure in certain areas or bring them into fast-growing categories.
“We have identified very clearly what kind of M&A we would like to do,” Martin Renaud, Mondelēz’s executive vice president and chief marketing and sales officer, said in an interview. “But it's just being very clear on what we want, having clear criteria on what are they bringing to us and then trying to find the right partners and build the right deals to make that happen.”
After a prolonged period of mega-deals, companies have narrowed their focus to buying one-off brands, oftentimes in $1 billion-plus deals. Recent deals in this vein include Hershey snapping up Dot’s to broaden the company’s salty snacks portfolio, Coca-Cola purchasing the rest of BodyArmor to boost its stake in better-for-you sports drinks and Mondelēz International gobbling up Clif Bar to increase its presence in the high-growth bar business.
Mondelēz has been building out its already strong snacking portfolio through the acquisitions of bands such as Give & Go, a maker of brownies, cupcakes and other items; Hu, a maker of snacks and chocolates made from simple ingredients and premium cookie maker Tate’s Bake Shop.
Renaud said the Oreo and Cadbury maker could look at strengthening its position in specific categories, such as chocolate, biscuits and snack bars, or even certain geographies around the globe.
During the annual Consumer Analyst Group of New York conference in Florida in February, executives said they have made meaningful progress reducing debt and improving their balance sheets following big deals a few years ago, giving them ample dry powder to make a deal when the timing is right.
Last year, an estimated 254 deals were consummated in the food and beverages sector in the U.S., compared to 304 in 2021, according to data provided by Dealogic.
While the number of deals declined by 50, the average value of a transaction last year was sharply lower at $67.5 million, versus $148.4 million in 2021. During the last decade, there have been about 245 transactions each year with an average annual dollar value of all deals of $47.6 billion, the figures show.
Kofi Bruce, General Mills’ CFO, said the Cheerios and Nature Valley manufacturer is looking at “acquiring to enhance our growth profile.”
His counterpart at J.M. Smucker, Tucker Marshall, said acquisitions “will continue to play a role in our strategy of expanding our leadership in the categories where we participate.” Before moving forward on a purchase, he said Smucker must determine if the buy is a good use of its capital and if the price is reasonable.
Smucker recently announced a deal to divest Rachael Ray Nutrish, 9Lives, Kibbles ’n Bits and other pet foods brands for $1.2 billion to Post Holdings. The sale, a mix of cash and stock, will provide the Jif and Uncrustables maker with extra cash it could use for an acquisition.
Brittany Quatrochi, an analyst at Edward Jones, said she expects some companies to prioritize paying down debt to normalized levels, while other companies might be more hesitant to take on additional debt in a higher-rate environment. For companies that opt to engage in M&A, analysts said they will likely eschew larger deals in favor of smaller bolt-on acquisitions of faster-growing brands.
“Companies are focused on leveraging their current portfolios, and have more selective criteria for acquisitions,” Quatrochi said.
Executives cautioned they are not looking to make acquisitions just because they have the ability or financial means.
Andy Callahan, Hostess Brands CEO, said he’s taking a “disciplined” approach when it comes to dealmaking at the sweet snacking company. Any acquisition would need to be incorporated into his business’ distribution network, and have room to grow and the ability to benefit from his company’s expertise and experience.
“Our No. 1 priority is our core business, but we have ample firepower to be able to buy the right asset,” Callahan said. “We don't put a timeline on that. We feel so good about our organic business to create value that we don't have to feel like we have a timeline. I don't have to fill a hole to transform my portfolio.”
Some executives appear to be taking an even more cautious role when it comes to M&A.
Sean Connolly, who heads Conagra Brands, said the frozen foods and snacks maker is focused on paying down debt and cleaning up its balance sheet following its $10.9 billion takeover of Pinnacle Foods in 2018, which added Birds Eye, Duncan Hines and Gardein to the fold.
While he wouldn’t turn down the right deal for Conagra’s business and its shareholders, it’s not a priority.
“We haven't been focused on adding additional things,” Connolly said in a recent interview.