Industry Insights

M&A Effects on the Food & Beverage Industry

October 2016
Author:  Tony Schneider

Tony Schneider

Managing Director

Corporate Finance

Manufacturing & Distribution

201 N. Illinois Street, Suite 700
P.O. Box 44998
Indianapolis, IN 46244-0998 (46204)

Indianapolis
317.383.4000

The food and beverage industry (F&B) continues to be an active space for merger and acquisition (M&A) activities. F&B transactional activities have steadily climbed since 2010 and peaked in 2015 with 880 transactions closed. Comparatively, there were 512 F&B closings in 2010. In recent years, more than 85 percent of closings were executed by strategic buyers, as acceptable organic growth has been a meaningful shortcoming for most who touch the farm-to-table continuum. These strategic activities have helped keep valuations elevated. Industry data sources indicate that valuation multiples of 8X to 12X earnings before interest, taxes, depreciation and amortization are common. This range is being achieved across numerous food industry segments, including lower-end, middle-market companies and the thinner margin segments, e.g., distributors.

While agribusiness and food industries are mature segments, the innovations and product advances create exciting times for those striving to enhance or protect their market share and/or earning’s vibrancy. Growers, producers, distributors and retailers who aren’t assessing their business models and product and service offerings are destined for a challenge. Changes in what the consumer wants have never been more in play.

These challenging macro conditions and market-driven complexities can be transformational opportunities for forward-thinking, best-in-class organizations. Many strategic F&B activities have been driven by large companies trying to fill specific product voids and/or mitigate or reverse margin erosions. However, the smaller producers and innovators found powerful and growing market niches where the market share gains have been highly profitable. Valuation gaps have thwarted many potentially rewarding deals between these two parties. However, BKD’s experience and recent F&B industry deal data show many of the companies responsible for feeding our world have partnered for the common good. Despite high valuations, unifying two parties can drive rapid and rewarding growth and have outstanding results. Upstanding companies are often embedded in the top decile of their industry standings and outgrow and outearn their peers. BKD has seen that most “excellent” companies have earned the highest valuations.

The pace and scale of change within the F&B industry is virtually driving all organizations to determine if they’re a “survivor,” “thriver” or “diver.” An organization should honestly assess how it stacks up against peers and those beginning to infringe on its space. No matter the evaluation’s outcome, its future will likely significantly differ from today. Many in the F&B industry are taking actions as they prepare for tomorrow. There appears to be a healthy balance of buyers and sellers, with the wants and needs of both sides being met. This elevated merger and acquisition activity in the broadly defined F&B area is expected to continue as new products are introduced and new go-to-market strategies are forged. Resources, scale and efficiencies are powerful allies in making gains. This is the time to strive for excellence, as the market rewards those who are thoughtful and purposeful.

Contact your BKD advisor for more information.

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