KANSAS CITY, MO — In the three years leading up to the pandemic, the food industry was in its heyday of mergers and acquisitions (M&As), with many companies engaging in the activity as a source of cost-cutting — and just as many companies looking for a good deal. Fast-forward five years: Food companies, leery of recession fears, inflation, rising interest rates and the ongoing battle against supply chain disruptions have turned their attention away from M&A activity. Instead, they’re choosing to funnel energy and cash into their core businesses and infrastructure.
The pivot caused a significant slowdown in big-money deals across the food and beverage industry. The commercial baking sector, specifically, has followed suit.
“Commercial baking is following the current trend in the larger food and beverage space of slowing down when it comes to mergers and acquisitions,” confirmed Glenn Pappalardo, managing director of JPG Resources, a consultancy focused on innovation, strategy and execution in the CPG food beverage space. “Bigger-end strategic buyers are looking to derive value from their existing portfolios versus going out and spending half a billion dollars on perhaps a fast-growing but highly valued emerging brand.”
That’s not to say M&A is dead; there are still deals to be made. Food and beverage companies are taking a more strategic approach than they may have in years past, with many of them acquiring brands that will either help them expand quickly into fast-growing categories or build out the distribution of a core business.
However, contrary to recent years when companies were willing to pay premium valuations in return for fast growth from an emerging brand, analysts have observed a change in perspective. Businesses are more cautious of the valuation and ensuring the premiums align with the growth expected from the acquisition.
“Companies are looking for ‘tuck-in’ acquisitions, things that add to growth,” said Brittany Quatrochi, an equity research analyst with Edward Jones. “Major food companies may use these smaller acquisitions to get their sales line going a little bit, which is going to be increasingly important. These will likely be deals they pay for with cash, that don’t require a large amount of integration, and that help them boost those faster-growing areas.”
Quatrochi noted Hershey, PA-based The Hershey Co.’s December 2021 purchase of Dot’s Homestyle Pretzels, which helped the company broaden its salty snacks portfolio.
“That was not a large-scale acquisition, but meaningful for them in terms of their growth outlook,” she said.
On a larger scale, Chicago-based Mondelez International acquired Clif Bar & Co. in 2022 as a way to quickly increase its presence in the fast-growing bar category. The purchase expanded the company’s global snack bar business to more than $1 billion.
Additionally, Thomasville, GA-based Flowers Foods spent $270 million on Papa Pita Bakery, a manufacturer and distributor of high-quality bagels, tortillas, breads, buns, English muffins and flatbreads. The deal included a sizeable co-manufacturing business and a state-of-the-art 270,000-sq.-ft. baking facility. The strategic move also expanded the bakery manufacturer’s geographic reach with direct-store distribution in the Western US.
“We have identified very clearly what kind of M&A we would like to do,” said Martin Renaud, executive VP and chief marketing and sales officer of Mondelez, during the annual Consumer Analyst Group of New York (CAGNY) conference earlier this year, when asked about the global snack manufacturer’s current approach to acquisitions. “But it’s just being very clear on what we want, having clear criteria on what are they bringing to us, and then trying to find the right partners and build the right deals to make that happen.”
While the right deal looks different for every company, current M&A trends point to three common themes: maturity, scalability and sustainability.
This story has been adapted from the August | Q3 2023 issue of Commercial Baking. Read the full story in the digital edition here.
