When Nestlé announced last month it was selling much of its North American water division, the $4.3 billion transaction marked the latest in a series of rapid-fire deals by the storied 155-year-old CPG giant to overhaul its portfolio through divestitures and acquisitions. The aggressive pace has set the world's largest food company apart from many of its rivals.
Since 2017, Switzerland-based Nestlé has closed or announced more than 75 transactions, representing about 18% of its portfolio, as it jettisons slower growing, less profitable brands, while bulking up on businesses that are more attune to changing consumer tastes, including coffee, pet food, nutrition, health and wellness. In just the past three years, Nestlé has made more than $30 billion in deals, and by all accounts the buying and selling frenzy is far from over.
"We'd love to do more acquisitions if the opportunity arises, but it has to be the right one," Sanjay Bahadur, deputy executive vice president and head of group strategy and business development at Nestlé, said in an interview. "The big moves are never done because the market never stays still and we need to keep up to date with it."
To be sure, other food and beverage companies are making deals of their own: This past February, Hormel Foods said it will purchase Kraft Heinz's Planters snack nut portfolio for $3.35 billion. In November 2020, Mars acquired the remainder of Kind North America in a deal valuing the snacks maker at $5 billion. There also have been several smaller deals from Mondelez International, Conagra Brands and McCormick & Co., among others, as companies reposition their portfolios.
But large, transformative deals that populated the M&A landscape a few years ago appear to be on hold for now.
Analysts speculate megamergers such as the combination of Kraft and Heinz in 2015 saddled the balance sheet of big CPGs with huge amounts of debt. The transactions forced them to rein in spending, which stifled R&D innovation. In many cases, they failed to generate the promised synergies. More recently, the first few months of the pandemic found food and beverage makers prioritizing the production of their most profitable, fastest-selling items rather than searching new brands to acquire or sell.
"We'd love to do more acquisitions if the opportunity arises but it has to be the right one. ...The big moves are never done because the market never stays still and we need to keep up to date with it."

Sanjay Bahadur
Deputy executive vice president and head of group strategy and business development, Nestlé
Nestlé was determined that its ongoing efforts to transform its portfolio and improve its growth prospects would not get derailed by the pandemic, Bahadur said. In one case, Nestlé was working on a deal to sell peanut milk and canned rice porridge businesses in China. With the country on lockdown, people were unable to visit its factory because of the coronavirus outbreak. So the food maker hired a firm to fly drones and capture footage of the facility for the buyer so the transaction could move forward.
"We have not deviated at all because of COVID, and I think that slowed down some people, but we just stuck to our guns," Bahadur said.
A 'huge, slow moving, really self-satisfied' company
Nestlé's growth ambitions took on a renewed sense of urgency in 2018, one year after Mark Schneider became CEO. The company found itself under pressure by activist investor hedge Daniel Loeb, which pushed it to "become sharper in articulating its strategy, bolder in re‐shaping its portfolio, and faster in overhauling its organization."
By all accounts, Nestlé's strategy to reconfigure its portfolio appears to be a successful one. The company posted 3.6% sales growth during 2020 — its highest rate in five years — thanks to high demand during the pandemic for coffee offerings like its at-home Nespresso platform, pet food and nutrition supplements. In the next few years, Nestlé is forecasting organic sales growth to accelerate to mid-single-digits.
Until recently Nestlé had been a "huge, slow moving, really self-satisfied" company, said Erik Gordon, a business professor at the University of Michigan. As a result, it was "missing virtually all of the growth categories" and it needed to catch up through acquisitions, Gordon said. "They were absent in categories that other people are growing and making money in."

During Schneider's tenure, Nestlé has rapidly expanded its lesser-known health-science business through a series of acquisitions, while offloading parts of its more familiar food and consumer-goods lines. This includes selling its U.S. confections and ice cream businesses in a pair of multibillion-dollar deals. The move to divest the majority of its struggling North American bottled waters business will allow Nestlé to focus on international premium brands like Perrier and San Pellegrino, local natural mineral waters, healthy hydration products and functional water positioned for long-term profitable growth.
"You get the idea that Nestlé is feeling more motivated to go out and look at deals and continue to do deals," Gordon said. "It's a different Nestlé than five or 10 years ago."
Nestlé emphasizes internal innovation before looking for deals, Bahadur said, but the rapid shift in the market sometimes necessitates acquiring a business. Otherwise, the company risks falling further behind in a particular area.
Bahadur said Nestlé will lessen the importance of major divestitures going forward, but expects to make more acquisitions using its strong balance sheet. "We need to keep doing that," he said. "We'll do bigger deals and smaller deals but with discipline and prudence."
One complicating factor that could put the brakes on deals, at least in the near term, is the fact that valuations for potential targets are "very rich right now" due to low interest rates, the cheap cost of capital, and competition from SPACs, he said. "It's one of the constraining factors in us making acquisitions," Bahadur said.
Healthy vital signs
Nestlé's aggressive push to retool its portfolio comes at a time when people are looking to eat better and protect their health, a shift that has gained momentum during the coronavirus outbreak.
In recent years, Nestlé added artisan coffee maker Blue Bottle Coffee and purchased Sweet Earth, its fast-growing plant-based line that offers everything from chicken and sausage to deli meats and hamburger. Last October, Nestlé purchased Freshly, a provider of fresh-prepared meal delivery services in the U.S.
While Nestlé remains focused on its core packaged food portfolio, personal health and nutrition have commanded much of its M&A focus under Schneider. As a former executive at German health-care giant Fresenius, he had a reputation for deal making and cost cutting. Schneider wants Nestlé, which gets about 3% of its sales from personal health and nutrition, to become a "powerhouse” in the category.

Since 2015, the division has more than doubled sales, which are growing at a double-digit pace, in large part through acquisitions.
Nestlé purchased Aimmune Therapeutics, a biopharmaceutical company that makes a therapy designed to help reduce children's allergic reactions to peanuts, for $2.6 billion in August 2020. Two months earlier, it nabbed a majority stake in Vital Proteins, a maker of collagen bars, beverages, capsules and powders. These deals follow Nestlé's acquisition of personalized vitamin company Persona in 2019, and its 2017 purchase of Atrium Innovations, a maker of nutritional health products, for $2.3 billion.
Schneider told analysts in February that actions such as overpaying for a business or purchasing one that doesn't fit with Nestlé's corporate culture or deviates from its strategy and core product categories are "very, very hard to fix down the road." He added that "cautious acquisition strategies, I think do pay off over time."
The Aimmume deal, in particular, has attracted the attention of skeptics who question whether the purchase is too far out of Nestlé's expertise in consumer products. Gordon noted Nestlé will have to work more closely with the FDA and handle reimbursements with insurance companies to cover the pharmaceutical unit's allergy treatment.
Bahadur downplayed whether Nestlé had ventured too far out of its core area of expertise, noting the mounting challenge that allergies will continue to play globally. He also pointed to the company's previous experience around allergies through its infant formula and health science operations. And he noted Aimmune's drug is made out of a common food: peanuts.
Ioannis Pontikis, a Morningstar analyst based in Amsterdam, said Nestlé still has many levers it can pull to hit its growth targets, with the divestiture of water playing a part.
Some of its competitors have had to make large-scale acquisitions to patch a gapping hole in their portfolio, he said — take, for example, Danone's $12.5 billion purchase of plant-based manufacturer WhiteWave in 2017 to help de-risk its slow-growing dairy business. But Pontikis said Nestlé has a solid core that only requires minimal adjustments.
By selling slow-growing businesses and exiting categories where it is not likely to lead, or that are not related to its core health and wellness focus, Nestlé has put itself in a strong position in its remaining businesses, the analyst said.
"When we talk about the competitiveness ... and the quality of the business, I think Nestlé is one of a kind by far," Pontikis said. "They are in a great position to win in every single category they are in."
Gordon said the portfolio overhaul has bought Nestlé some time to convince investors that it's more in touch with consumer trends. He also considers the billions of dollars it has spent to buy companies after divesting some of its most iconic brands to be a wise investment.
"Instead of folks saying 'Nestlé has to do something. Will Nestlé ever move?' They have seen that Nestlé has made some big moves," Gordon said. "Now, let's see how they work out."