In a recent Food Dive feature article, author Carolyn Heneghan sought perspective from SDR Ventures’ Food and Beverage Director Ben Rudman and Mergermarket’s Deputy Editor Anthony Valentino to help paint the landscape for future food and beverage M&A activity.
As SDR’s Ben Rudman pointed out in the article, “sometimes the factors that drive M&A are not necessarily the typical capital market factors that you might think about.” Heneghan outlined some primary factors that will likely drive more M&A activity in the space, including consumer demand and innovation, the supply of acquisition targets and the political climate.
One of the main drivers of food and beverage M&A has become, and will likely continue to be, the contrast between the established, and generally slower-to-evolve brands that populate the center of grocery stores and the newer, innovative brands that populate the perimeter of stores. As Valentino points out, the perimeter brands “have the brand loyalty, and they can grow quickly.” Consumer demand is fueling these companies, and Rudman cites plant-based ingredients as healthy alternatives that have been around for 20 years, but just now are catching on with consumers since they finally provide great taste in addition to health benefits.
At the end of the day, the center-of-store brands are left seeking the high growth and customer loyalty that many perimeter brands are attaining, but their options are limited: they either can invest in internal research and development (R&D) or try to acquire perimeter brands. Many are opting for the latter, and as Heneghan pointed out, “many larger manufacturers have launched dedicated venture capital arms to set aside funds and invest in potential acquisition targets.”
Although food and beverage innovation is accelerating and there is bevy of motivated large acquirers, innovative companies still need to be willing to sell their companies to major corporations, and many startup founders simply are not. But Rudman asserted that baby boomers, who own numerous food and beverage businesses, ultimately will factor into M&A activity as they get later in their retirement windows and seek exits from their businesses.
Finally, the political climate over the past year-plus was likely a deterrent on food and beverage M&A. Even though, as Valentino stated, “the effect (of the election) on food businesses is muted (compared to other industries),” many business owners seemed to be waiting out the uncertainty before heading to market. With the U.S. election now in the rear-view mirror, Rudman concluded, “2017 could bring a pretty robust Q1 and Q2” for food and beverage M&A.