“If you look at beverage and large cap food companies, they've continued to trade above the S&P and above a number of the other indices that we generally look at, which tells you that they're still active,” Siegler said. “They're doing well, and they still have great interest in making acquisitions to help their growth even in these kinds of more volatile sort of market times.”
Credit markets might be tough, but the market dynamics remain the same
Overall, mergers and acquisition in the food and beverage space have remained steady, with 73 deals reported in the fourth quarter of 2022, the tenth consecutive quarter of over 70 deals, according to S&P Global Market Intelligence shared in the webinar.
“M&A fundamentals remain, and you can see this by looking not only at the multiples buyers are paying. You can also look at the cash balances both at the corporate level and the dry powder the private equity continues to have.”
Though “credit isn't quite as available as it used to be” and “the first half of 2023 is going to be a little slower than the second half,” many CPG companies are just waiting for the right time to make a deal, Siegler said. CPG brands might have to wait to the second half of the year to make these deals, when the overall economic picture might be brighter than many are predicting, evident by consumers spending habits, he added.
“While there is a sense that higher interest rates are slowing things down, at the end of the day at 3.5% unemployment, people are still spending money. They may be trading down a little bit, ... but we think that there's a lot of resiliency in the economy, and we're not too concerned about how the consumer is going to react.”
Big players looking to beverage, better-for-you opportunities
M&A-related activity is growing in a number of categories, but Siegler highlighted two key segments with largest percentage of the growth: beverage and better-for-you. Non-alcoholic beverages accounted for 11% of the mergers and acquisitions that took place in 2022, with better-for-you coming in at 9% of the total, according to BMO data.
“All the big beverage companies want to be both in alcohol and non-alcohol, and ready-to-drink products seem to be the fashion of the day. This is impacting their acquisition strategy; this is impacting their strategic moves. And I think it'll impact smaller companies that have developed very nice brands and opportunities.”
And when it comes to better-for-you category, consumers are looking for a host of benefits from stomach to brain health and functional beverages, which is creating merger and acquisition opportunities, Siegler noted. Last year, candymaker Mars acquired whole-fruit snacking brand Tru Fru, and its rival Ferraro purchased Wells Enterprise, the makers of Blue Bunny ice cream and lower calorie ice cream brand Halo Top.
"Consumer product companies now see that they have to develop products a lot quicker and they have to be a lot more creative and they have to basically address younger generation potential buyers who really focus on unhealthy ingredients."
What might get divested in the process?
CPG companies also are reshaping their portfolio by divesting lower-performing brands to spur long-term growth, Siegler shared.
“Many of the large CPG companies are not only active in making acquisitions, but they're also active in repositioning their portfolios,” Siegler said. “If you look at the number of transactions that have happened recently, there continues to be this rebalancing of portfolios and a fair amount of sub-sector roll-up opportunities.”
Siegler shared several divestiture predictions based on data from BMO, Wall Street Research, company presentation, and other public sources. He predicted, in 2023, Conagra might divest its Hebrew National, Vlasic, and Wish-bone brands; General Mills its Progresso and Toaster Strudel; Kraft Heinz its Capri Sun, Kool-Aid, Oscar Meyer, Maxwell House, and Jet-Puffed; and Nestle its Maggi, Nestea, and Nesquik.