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Wilfred van der Lee
05 Aug 2020
In our half-yearly dealtracker updates we analyse mergers and acquisitions for the food, beverage and agriculture sectors. We highlight the following aspects of this sectors from an M&A perspective:
COVID-19 halves deal activity in the sector
COVID-19 brought the world and the economy to a standstill. As a result, deal activity dropped to unseen levels. The number of deals in the first half of 2020 in Europe decreased by 52% compared to the first half of 2019. In addition to the disruptive effects of COVID-19, we still notice that consumers and their changing customer behaviour are driving and influencing M&A transactions. There is an increasing demand for healthy products, home delivery options, transparency and sustainability and personal experience and the willingness to pay for this.
Answering sustainability demands drives deal activity in the sector.
Sustainability is a topic that is gaining more and more importance and attention, especially within the Food, Beverage & Agriculture sector. As concerns for healthy food products are increasing, so has the interest in artisanal and authentically made products. An example of a transaction answering this demands is the acquisition of Bister, producer of artisan made mustard, by Nature. The strategy of the Belgian buyer is to create strong and local brands.
Another trend that is driving deals in the sector is about companies restructuring their portfolios in order to answer sustainability demands. An example of this is the agreement of Nestlé to sell a 60% stake in Herta, their meat-processing participation, to Spain’s Casa Tarradellas.
Answering to increasing conscious consumer demands is the main deal driver in the sector
Within the Food, Beverage & Agriculture sector we observe an increased consumer demand for healthy food products coming from sustainable sources. The importance of brand names and price tags is replaced by telling the right story. In the first half of 2019 we observe this trend of conscious and sustainable innovations as the main driver for companies to be acquisitive. This trend is shown in the acquisition of EAT by Pret A Manger. With the acquisition Pret A Manger wants to offer more vegan and vegetarian options to their customers. Another example is the acquisition of Graze by Unilever, through which Unilever aims to further expand their portfolio of purpose-driven brands.
Keeping up with latest trends by means of strategic acquisitions
We believe that large and traditional food companies will more often adapt to the latest consumer trends, such as natural, vegan and organic foods by means of strategic acquisitions. This enables them to capture the growing demand for such products while growing inorganically. A good example of this is the acquisition of The Vegetarian butcher by Unilever in Q4 of 2018.
Number of deals slightly decreasing but still a key economic sector in Europe
The number of transactions in the European Food, Beverage and Agriculture sector increased significantly the past few years, which seems to be stabilizing, as 2018 shows slightly lower deals and valuations than 2017 Q3. This is no surprise, due to the relatively explosive growth in deals and deal value over the past 5 years.
Transaction valuation multiples increasing
European transactions in the above-mentioned sectors stay behind in
the second quarter of 2018. With 126 transactions compared to
160 in Q2 of 2017, we conclude a significant decrease. As earlier
announced, there could be a stabilization in M&A activity after an
active and thriving deal making market in 2016 and 2017. Another
factor that could impact the amount of deals is the current political
environment. Concreteness surrounding the Brexit regulations is still
absent and less than 6 months remain until Britain leaves the
European Union on March 29, 2019. The deal making industry is also
affected by the uncertainties which are sparked by the trade war the
Americans are currently pursuing.
Transaction valuation multiples increasing
European transactions in the abovementioned sectors stay behind in 2018 Q1, with 147 transactions (2017 Q1: 182). There could be a stabilization in M&A activity due to global (political) uncertainty after an active and buoyant deal making market in 2016.
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