According to the Q1 2014 Capital Markets Flash published by PWC, there has been a 45% increase in the number of deals in the Canadian food and beverage industry in March 2013-2014, as compared to a year prior. This healthy activity is also seen in the US, where deals in the food and beverage sector were valued at approximately $40 billion in Q1 alone, and in Europe where there were 292 deals in the last 12 months and a 50% increase in deal volume from Q4 2013 to Q1 2014.
Deals over the past year have ranged from relatively small to large, and in various subsectors of the food and beverage industry such as grocery stores, beer and alcohol, food packaging, snacks and meat products. In the meat products deal, which has not yet been concluded, a bidding war has erupted between two of the US’s largest chicken producers, with the latest offer comprising a $400 million premium over the initial offer.
Even established brands are increasing their footprint in North America, with one health food company doubling its US operation just this year by acquiring 100% of a juice company.
PWC credits growth in the sectors on heightened global competition and consolidation, brand diversification, and the stability of such investments. As evidence of this, Sean Connolly, Hillshire Brands president and CEO recently said regarding his company’s takeover of Pinnacle Foods:
The acquisition creates a leading branded food company with enhanced scale, reach, and capabilities while providing margin expansion and strong EPS accretion [and] The complementary portfolios and strategic fit of these two companies create significant value for the shareholders of both organizations.
Other reasons for activity include companies wishing to get “younger”, with two established companies acquiring trendy companies with expertise in emerging markets, such as coconut-based beverages and healthy children’s food.
PWC and Grant Thornton predict that this sector will continue to grow in 2014 and beyond.
The author wishes to thank Benjamin Reingold, articling student, for his assistance in preparing this legal update.