Expertise Beyond the Numbers

Food & Beverage Manufacturers Hungry for Acquisitions

In a market where healthcare, media, and technology mergers and acquisitions dominate headlines, the food and beverage industry is developing a large appetite of its own. With attention fixed on the Sinclair-Tribune deal for the better part of the year, the food industry has closed billion-dollar deal after billion-dollar deal.

More than 100 deals were closed in just the first six months of 2018. Out of those 100 deals came five attention-grabbing acquisitions, each worth over a billion dollars:

  • The Hershey Company acquiring Amplify Snack Brands, the makers of SkinnyPop popcorn, for $1.6 billion.
  • The Campbell Soup Company completing the acquisition of Snyder’s-Lance (Snyder’s pretzels and Lance crackers) for $6.1 billion.
  • General Mills picking up the well-known, organic pet foot maker Blue Buffalo for $8 billion.
  • Congra Brands announcing plans to buy Pinnacle Foods to create the second largest frozen foods company in the US, behind Nestle, for $10.9 billion.
  • Tyson Foods agreeing a deal to acquire meat manufacturer Keystone Foods for $2.1 billion.

The second half of 2018 shows little sign of M&A slowing down for the food industry. PepsiCo announced on August 20 that they are purchasing the seltzer-maker SodaStream for $3.2 billion. SodaStream, the Israeli-based manufacturer, has grown considerably in recent years – following a similar growth trajectory of other seltzer and sparkling water companies. Their products turn regular tap water into a fizzed sparkling water in a matter of seconds. The company also sells more than 100 different types of syrups and flavors for making carbonated water.

Only months after launching Bubly, Pepsi’s sparkling water brand, the beverage and snack giant made a real statement of intent with the SodaStream purchase. Before the acquisition, SodaStream was one of Pepsi’s most vocal critics for their sugar-filled and often unhealthy beverages and snacks. The purchase wasn’t done to silence criticism of their brand, rather Pepsi recognized the shifting landscape of consumer tastes and made a move to broaden their offerings beyond sugary sodas and salty snacks.

Over the last decade the snack and convenience food market has experienced significant growth. Food and beverage manufacturers like Pepsi have been looking for outlets to grow their market share by taking advantage of consumer snacking trends favoring better health and convenience (portability or “on-the-go”). In many of the acquisitions of the last few years, the company being bought filled a niche section of the food and beverage market. The sugar free seltzer water of SodaStream, the low calorie and gluten free popcorn of SkinnyPop, and last year’s purchase of BAI Brands and their antioxidant drinks by Dr. Pepper all point to a strong unique-brand being acquired by a large global-organization. Brands like Pepsi are a global force and purchasing rising companies like SodaStream enables them to take advantage of that growth and advance it even further through their international production, distribution, and marketing. Many acquirers are targeting companies that fill a niche in their food product portfolio and will pay a premium to compete with other potential buyers. This is why the price tag on SodaStream was $3.2 billion (a 32% premium), and why Hershey had to pay $1.6 billion for SkinnyPop’s healthy popcorn.

“Unsurprisingly, the food and beverage industry M&A activity has shifted in parallel with consumer desires for healthier and even environmentally friendlier choices. We expect this trend to continue to follow evolving consumer trends closely,” said Matthew Roberson, Director, SC&H Capital.

The growth and outlook of M&A in the food and beverage industry looks favorable. The trend towards increased acquisitions is likely to continue its upward rise. Many food manufacturers are shifting their strategies for growth and product development to an exit strategy rather than expanding on current product development. As a direct result, middle market organizations in the industry are seeing an uptick in their valuations.

A transaction completed earlier this year with the help of SC&H Capital led to MAW Acquisitions LP acquiring G&S Foods/Tastysnack Quality Foods Inc.. Located in Abbottstown Pa., known affectionately as the Snack Food Capital of the World, G&S Foods took full advantage of a robust and competitive marketplace. G&S Foods became one of the more than 100 deals to be completed in 2018, many of which fall into the middle market category like the Pennsylvania based snack maker.

“Identifying the right fit for a seller is not just about securing the best valuation. It’s also about finding a buyer or investor who sees the same future for the business as the owners. Sellers want to feel comfortable when they turn over the keys,” said Kevin O’Sullivan, Principal, SC&H Capital.

For SC&H Capital, the G&S Foods acquisition marked yet another successful transaction in the food and beverage industry, the second in just the last year. SC&H Capital anticipates this growth will only continue. A recent Capital Insights report outlines the trends behind the rise of food and beverage M&A activity, and discusses the variables driving activity, its effect on middle market organizations, what buyers are looking for in deals, and what sellers need to know before getting started.

Whether it’s a global brand like Pepsi, or a mid-market company like G&S Foods, food and beverage manufacturing will continue to be a hotbed of activity as organizations look to take full advantage of the evolving industry and consumer preferences.