U.S. food companies go deal hunting as pandemic growth fades

Hostess Brands

08/09/2023 14:27

By Deborah Mary Sophia
       Sept 8 (Reuters) - U.S. packaged food companies are set
for a flurry of deals in a push to revamp their brand portfolios
as their pandemic-era fortunes fade and benefits of price hikes
start to taper off.
    Last month, Campbell Soup  CPB.N  struck a $2.7 billion deal
for Rao's sauce maker Sovos Brands  SOVO.O . Unilever  ULVR.L 
bought premium frozen yogurt brand Yasso in North America, while
Snickers maker Mars acquired healthy foods maker Kevin's Natural
Foods. 
    "There's been a nice uptick in M&A (mergers and
acquisitions) in the food industry in the first half of the
year...," said Michael Milani, executive managing director and
principal at advisory firm Baker Tilly.
    "It has been a big theme, and we expect that to continue in
the back half of 2023 and into early 2024."
    This is despite higher borrowing costs straining companies
looking for acquisitions. 
    The value of deals in the U.S. food and beverage industry
slipped nearly 3% to about $10.39 billion this year, according
to LSEG data. But their volumes climbed 17.5% to 248 as of Sept.
1, making the industry a bright spot in dealmaking.
    The total number of deals across all industry sectors slid
4% in the same period, data showed.
   
 "Large food companies need to add more new concepts, new flavor
profiles and new food items because their old brands - though
still growing - are not growing at a meaningful rate," Milani
said.
    The rise in deals comes as volume of sales at companies such
as Kraft Heinz  KHC.O  and Campbell fell for at least the past
six quarters due to weak demand, while benefits from price hikes
also fade.
     "I would expect there to be a continued drumbeat of M&A,"
said Sarah Henry, managing director and portfolio manager at
Logan Capital Management, which holds shares in PepsiCo  PEP.O 
and Mondelez International  MDLZ.O .  
    Packaged food companies "are now faced with some difficult
comparisons on organic (sales) and are seeking some strategic,
category-specific M&A targets that will propel them through the
next few years," Henry said.
    Cheerios cereal maker General Mills  GIS.N  has pinned M&A
as a key goal in the coming years, with executives saying it is
a "good environment for M&A right now."
    For Mondelez, bolt-on acquisitions are the way to go, the
Oreo maker's finance chief Luca Zaramella had recently said at a
Barclays conference. 
    Last month, Reuters reported that Twinkies snack cakes maker
Hostess Brands  TWNK.O  was exploring a sale and that Mondelez
and Hershey  HSY.O  could be in the race to buy it. 
    J.P. Morgan analysts said they could be eyeing Hostess to
expand outside of North America.
    "Most of the large cap packaged food companies have ...
diligently reduced their debt and improved their balance sheet
(through the pandemic)...so they have the risk capacity and risk
appetite to pursue large-scale acquisitions," CFRA Research
analyst Arun Sundaram said.
    "These packaged food companies need to continue finding ways
to stay relevant ... And so one of the easiest ways to do that
is through M&A."    
    

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Volume of deals in the U.S. food & beverage industry   
 https://tmsnrt.rs/3RfkuGe
Total value of deals in the industry in the past 5 years     https://tmsnrt.rs/45M5ggn
Debt levels at food makers have reduced from pre-COVID levels   
https://tmsnrt.rs/3Z7T9aS
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Deborah Sophia in Bengaluru; Editing by Arun
Koyyur)
 ((DeborahMary.Sophia@thomsonreuters.com;))