The Agriculture, Food & Beverages industry is constantly evolving to keep up to date with new trends and preferences across different demographics. Certification and confirmation of quality, ethical practices and sustainability are as important as ever to customers.
M&A Worldwide and the Agri, Food & Beverages specialist group, are always keeping track with developments in the Agri, Food & Beverages industry, as well as new demands and strategic requirements, enabling us to be a valuable M&A partner.
This report covers market outlook, recent M&A and hot topics in the Agri, Food & Beverages industry.
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Global M&A Review
According to Mergermarket (an Acuris company), global M&A saw a contraction in activity in 2017, resulting from investment uncertainty. Despite this, 2017 M&A marked the fourth consecutive year in which cumulative deal values exceeded the $3tn mark. Cross-border activity continues to be prevalent, accounting for 35% of deals (albeit deal volumes are slightly down when compared to last year). This is largely considered an effort by deal makers to spread risk, so not to leave themselves overly exposed to geopolitical uncertainty.
Technology was a major driver for M&A activity across all sectors, accounting for a record number deals in 2017. As technology continues to disrupt traditional sectors, there will be an overwhelming requirement for companies to invest in this area, be it through innovation or acquisitions. The rapid pace in which technological advancements are being made suggests that inorganic growth levels will increase in the future.
Cheap debt is a recurrent theme as we move towards the end of Q2 2018. With funds being readily available, we can expect purchaser activity to be buoyed and more high-profile deals making the headlines throughout the course of the year.
M&A Activity in Agri, Food & Beverages
2017 saw 206 transactions announced or completed in the Food & Beverage (F&B) industry, a 2% increase on the prior year. While the increase in deal volumes was modest, deal values have risen sharply. Total (disclosed) deal values for 2017 in F&B reached c. €24.1bn, more than double that of c. €9.8bn in 2016.
Alcohol was the strongest segment of the market in 2017, accounting for 16.5% of activity. Towards the end of the year, Thai Beverage won an auction to buy a majority stake in Vietnam’s top brewer, Sabeco, for $4.8bn, in a bid to dominate the beverage market in South East Asia. This multi-billion-dollar deal follows Diageo’s acquisition of George Clooney’s tequila brand, Casamigos for close to $1bn in June.
At the start of April 2018, C&C, the Irish manufacturer, marketer and distributor of branded alcoholic drinks (including Magners cider) announced that it is in advanced discussions to acquire Conviviality brands including Matthew Clark and Bibendum. Financial support for this transaction will be provided by Belgian brewer, AB InBev. The news follows the Conviviality going into administration after profit warnings were issued to the market and the company admitted it had not budgeted for a £30m tax bill. Other brands owned by Conviviality such as, Bargain Booze and Wine Rack, will not be included in the deal with C&C and will be sold separately.
Private equity’s involvement in F&B has been the most significant to date. The headline transaction to note at the end of 2017 was the c. €7bn sale of Unilever’s spreads business, which includes the likes of Flora margarine, to US buyout fund, KKR. The sales multiple of 10x last year’s EBITDA is considerably less than the 20x achieved by Reckitt Benckiser for its food business in July last year, however, this price was generally considered to be higher than expected. The sale comes after a rejected takeover bid from Kraft Heinz for Unilever was earlier in the year led the business to reconsider its portfolio, and a fall in total sales volume for the spreads business as consumer preferences move towards natural foods.
Consumer trends have been seen to be dictating strategies for many other traditional food and drink businesses too. October 2017 for instance, saw Kellogg’s $600m acquisition of RXBar, a US-based whole food protein bar company. In January this year, Swiss food group, Nestle, sold its US confectionery business to Ferrero, for €2.8bn, which has been viewed as a first step towards selling healthier products. The high levels of growth in the healthier segment of the market and high potential exit valuations have been proving attractive to private equity as well. Notably, US firm, Cinven, agreed in October to buy a majority stake Spanish berry supplier, Planasa, for €450m, following double-digit revenue and profit growth over recent years.
One deal to keep an eye out for is JAB Holdings’ (JAB) acquisition of soft drinks business, Dr Pepper Snapple. The deal was announced towards the end of January 2018. Dr Pepper Snapple will be merged with coffee company, Keurig Green Mountain, who are owned by Luxembourg-based investment firm, JAB. The estimated consideration for this transaction could be as much as $21bn and it will be the largest ever deal in the soft drinks industry. Strategic rationale for this deal has been questioned by various industry analysts, given the climate for preferences. That said, it is thought that it will allow Dr Pepper Snapple to compete more effectively with the likes of Coca-Cola and PepsiCo. The deal is awaiting approval from shareholders and regulators.
The online segment is one which has been growing as technology disrupts F&B. Amazon’s $13.7bn acquisition of Whole Foods Markets was the largest in 2017 and US-based food retailer, Bite Squad, were the most active buyer, adding 17 online food delivery companies to its portfolio over the course of the year. With companies looking to provide consumers with more choice and convenience, this is one industry area that is anticipated to grow even further.