After a year since we first reported that acquisitions of natural and organic food manufacturers had increased demonstrably, the trend has not wavered. Companies in the food and beverage industry that are branded with a view to promoting health and wellness have garnered an increasing amount of attention. This attention in recent years has not always been the case. This is evidenced by looking at the revenue a food start-up would have had to earn before becoming attractive to a larger acquiring company years ago, compared to nowadays. Roughly 5 to 10 years ago, a food start-up that was branded as a health and wellness company had to earn roughly $75 million in revenue before a company wished to acquire it. Conversely, companies are now interested in a health and wellness food start-up even if it makes $10 to $20 million.
Increased deal activity in food and beverage sector
Food companies geared towards health and wellness are not the only ones in the food and beverage industry to have increased in deal activity. As previously discussed, the “indulgence” category and particularly “super-premium” products have become more attractive to acquirers. “Super-premium” products, such as craft beer, have grown in demand whereas demand for the counterparts, such as commercial beer, have decreased.
However, growth in mergers and acquisitions (M&A) activity is not unique to the above-mentioned categories in the food and beverage industry. Growth in the number of deals has occurred in the entire industry as a whole. What’s more is that the industry is expected to become even busier. It was predicted that 2017 would be very successful year for M&A in the food and beverage industry. An example of the growth in M&A activity in the food and beverage industry is the number of completed transactions during Q2 2017. The 77 completed transactions that occurred in Q2 2017 is a 40% growth from Q2 2016.
Growth expected to continue
It has been predicted that the food and beverage industry growth seen so far will continue for the duration of 2017. The announcement that Dole Food has asked Morgan Stanley and Deutsche Bank to receive potential offers for the sale of the company further fuels this prediction. Dole Food has already received a number of bids during the first round.
Rationale for boom in food M&A
One potential reason for the boom in M&A activity in the food and beverage industry is the aging population in Canada that are looking to sell their businesses. Another reason offered is that consumption tendencies are changing, which in turn is prompting companies to diversify their products.
Reasoning aside, it is evident that food and beverage companies have become more attractive to acquire. It is yet to be seen whether the upward trend of food company acquisitions will continue.
The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.
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