By Deborah Mary Sophia
(Reuters) – U.S. packaged food companies are set for a flurry of deals in a push to revamp their brand portfolios as their pandemic-era fortunes fade and benefits of price hikes start to taper off.
Last month, Campbell Soup (NYSE:) struck a $2.7 billion deal for Rao’s sauce maker Sovos Brands. Unilever (LON:) bought premium frozen yogurt brand Yasso in North America, while Snickers maker Mars acquired healthy foods maker Kevin’s Natural Foods.
“There’s been a nice uptick in M&A (mergers and acquisitions) in the food industry in the first half of the year…,” said Michael Milani, executive managing director and principal at advisory firm Baker Tilly.
“It has been a big theme, and we expect that to continue in the back half of 2023 and into early 2024.”
This is despite higher borrowing costs straining companies looking for acquisitions.
The value of deals in the U.S. food and beverage industry slipped nearly 3% to about $10.39 billion this year, according to LSEG data. But their volumes climbed 17.5% to 248 as of Sept. 1, making the industry a bright spot in dealmaking.
The total number of deals across all industry sectors slid 4% in the same period, data showed.
“Large food companies need to add more new concepts, new flavor profiles and new food items because their old brands – though still growing – are not growing at a meaningful rate,” Milani said.
The rise in deals comes as volume of sales at companies such as Kraft Heinz (NASDAQ:) and Campbell fell for at least the past six quarters due to weak demand, while benefits from price hikes also fade.
“I would expect there to be a continued drumbeat of M&A,” said Sarah Henry, managing director and portfolio manager at Logan Capital Management, which holds shares in PepsiCo (NASDAQ:) and Mondelez (NASDAQ:) International.
Packaged food companies “are now faced with some difficult comparisons on organic (sales) and are seeking some strategic, category-specific M&A targets that will propel them through the next few years,” Henry said.
Cheerios cereal maker General Mills (NYSE:) has pinned M&A as a key goal in the coming years, with executives saying it is a “good environment for M&A right now.”
For Mondelez, bolt-on acquisitions are the way to go, the Oreo maker’s finance chief Luca Zaramella had recently said at a Barclays conference.
Last month, Reuters reported that Twinkies snack cakes maker Hostess Brands (NASDAQ:) was exploring a sale and that Mondelez and Hershey could be in the race to buy it.
J.P. Morgan analysts said they could be eyeing Hostess to expand outside of North America.
“Most of the large cap packaged food companies have … diligently reduced their debt and improved their balance sheet (through the pandemic)…so they have the risk capacity and risk appetite to pursue large-scale acquisitions,” CFRA Research analyst Arun Sundaram said.
“These packaged food companies need to continue finding ways to stay relevant … And so one of the easiest ways to do that is through M&A.”
Read the full article here
