Mergers & Acquisitions

Food and Beverage

M&A Advisors to the Food and Beverage Industry

Although it’s one of the largest and oldest industries in the world, the food and beverage industry is still full of innovation. From new products to higher-volume, lower-cost production techniques, the industry is always looking for new ways to produce the food that consumers want at an affordable price. 

A global network of diverse businesses, the food sector is multifaceted and supplies the majority of the food that the world’s population consumes. Today, the food industry ranges widely from small, traditional, family-run activities that are highly labor-intensive, to large, capital-intensive and highly mechanized industrial processes. 

The food supply chain is not a singular chain of entities, but rather a complicated web of interconnected businesses that aims to make food available to the world’s population. In the thousand of food and beverage manufacturing plants across the country, employees are transforming unrefined agricultural materials into products for final or intermediate consumption. 

The food, agriculture, and beverage field is comprised of several complex and dynamic business models, which vary based on the subsector. While the industry largely remains fragmented, it has consolidated into larger, integrated operations in recent years. Regardless of sector, size, and type of operations, numerous forces are reshaping the industry, leading to the introduction of new business models, consolidation, and thus, M&A activity.

Are you considering selling a business in the food industry?

With our long-standing experience in the food and beverage industries, we can provide our clients with in-depth expertise for the most favorable outcomes. Our knowledge of traversing the mechanics of a variety of food and beverage transactions in the middle market offers our clients the critical, time-sensitive assistance they require throughout the transaction process. From the first client meeting through close, we maintain a fierce dedication to our clients’ end-goals. With a unique depth and breadth in the food and beverage markets, our investment banking team maintains the operational and transactional experience within the market to ensure the best possible outcome for our clients. Get in touch with one of our investment bankers today regarding your next transaction.

Food and Beverage Investment Bankers

Our team has the insight and familiarity to navigate this complex and dynamic environment and understand how these forces interact with each other to impact your business. We have proficiency and the know-how of the entire value chain, and our understanding spans the full range of transaction sizes, types, and drivers, from marquee strategic transactions to emerging market acquisitions. 

Our food and beverage team combines financial expertise with an insider’s mastery of the current opportunities, challenges, and trends. From processing and manufacturing to production and distribution, we’ll provide you with the advice you need to achieve your strategic financial objectives. 

Morgan & Westfield’s complex understanding of the industry can help you maximize your price. Schedule a consultation today to see how we can help you.

Reasons for Acquisitions in the Food Industry

As the number of independent companies dwindles, the appetite for acquisitions in the food industry remains high as legacy brands seek to remain competitive and capitalize on consumer trends.

The food and beverage sector is experiencing a revolution, between changing consumer demands and sustainability goals, increased costs, regulatory pressure, and supply chain constraints.

The following are some of the underlying drivers of acquisitions in the space:

Product and/or Category Expansion

  • Strategic buyers acquire a business that sells a product related to its own categories that it can then introduce throughout its distribution network.

Geographic Expansion

  • Buyers expand into new geographic markets. For example, international companies often look to expand into the U.S. 

Consolidation

  • Legacy brands are experiencing slow growth. To counter this trend, these buyers capitalize on synergies and economies of scale, which increase buying power with raw materials or selling power with retailers, or sales growth, to improve margins.

Intellectual Property

  • Buyers acquire smaller companies as an alternative to research and development.

Changes in Consumer Preferences

  • Consumers, governments, and investors are pressuring food and beverage companies to innovate to improve sustainability, reduce waste, and create healthier alternatives. For example, consumers are eating healthier snacks, which now account for 40% of U.S. packaged foods. Beverage companies, such as Coca-Cola and PepsiCo, and cereal manufacturers, such as Kellogg’s, have entered new markets to capitalize on trends.

Buyers in the F&B Industry

While the acquirers in the industry are diverse, some clear trends have emerged in recent years. The following is a summary of the types of buyers most active in the food and beverage industry.

Private vs. Public Buyers

  • Public Buyers – 20 to 25% of buyers are public entities.
  • Private Buyers – 77 to 80% of buyers are private entities.

Strategic vs. Private Equity Buyers

  • Strategic Buyers – Represent approximately 70% to 80% of transactions.
  • Private Equity Buyers – Continue to be active in the food and beverage field, and have been responsible for approximately 40% to 50% of activity in recent years. Private equity investors were particularly focused on early-stage high-growth companies where there is often less competition from large trade buyers that prefer to innovate internally or acquire more established businesses.

Multiples for Food Businesses

A summary of recent Enterprise Value (EV) to EBITDA multiples for publicly traded companies in the food and beverage manufacturing and processing subsector is as follows:

  • Alcoholic Beverages: 13 to 19 x EBITDA
  • Branded Processed/Packaged Food: 12 to 14 x EBITDA
  • Better-For-You (Natural/Organic): 14 to 21 x EBITDA
  • Baked Goods: 11 to 12 x EBITDA
  • Dairy: 12 to 14x/10 to 12 x EBITDA
  • General Food Processors: 12 x EBITDA
  • Ingredients: 11 to 14 x EBITDA
  • Meat: 6 to 11 x EBITDA
  • Non-Alcoholic Beverages: 15 to 18 x EBITDA
  • Pet: 9 x EBITDA
  • Produce: 11 x EBITDA
  • Snacks: 15 to 18 x EBITDA

Acquisition Activity in the F&B Industry

Here is a summary of the breakdown of acquisition activity by subsector:

  • Agribusiness: 12%
  • Beverage: 32%
  • Branded Packaged Goods: 39%
  • Natural and Organic: 9%
  • Snacks: 6%

Factors Affecting the Industry

Today, the food and beverage industry is changing faster than at any other time in its history. Multiple forces, including international trade policy, climate change, demographic shifts, evolving consumer tastes, and the adoption of new technologies are driving disruption across the entire value chain.

A summary of the primary factors that are likely to continue to affect the industry is as follows:

  • Shipping Rates
    • Shipping rates are expected to stay elevated in coming years. High rates are squeezing smaller companies, whereas larger companies are more likely to negotiate more favorable terms.
  • Energy Prices
    • Energy prices will put a crimp on margins and affect input costs. The question is who in the supply chain will absorb these costs. Energy cost management and energy efficiency will continue to remain top priorities for the industry.
  • Labor Shortages
    • As staff shortages continue, firms will speed towards automating processes, which will continue to have a positive effect on capital investments.
  • Supply Chain Issues
    • Supply chain issues will continue to to be affected by geopolitical events and an increase in input costs, such as gas prices.
    • The challenges vary based on where the company sits in the supply chain and will continue to cause raw materials delays and rising costs for importing and shipping raw materials.
  • Consumer Demand
    • Stronger consumer demand and a change in consumer consumption patterns will lead to higher valuations, which may lead to companies seeking an earlier exit at a strong valuation.
  • Interest Rates
    • We have experienced the highest levels of inflation in 40 years, and economic factors will have a greater impact on on the industry than in the past several decades.
  • Inflation
    • Food and beverage are, of course, just a subset of more general inflation drivers and concerns, accounting for 9.3% of the overall consumer shopping basket. As inflation continues, futures contracts will be used by many companies to hedge external risks.
    • While the dynamics of contracts and high levels of competition have meant that inflation in the F&B sector is slightly lower than the economy as a whole, these constraints on prices are unlikely to last. The sector is particularly exposed to current economic and political instability affecting global supply chains, and production and labor costs can expect higher inflationary pressures over a longer period than for other goods.
    • What drives inflation?
      • Government spending from the pandemic injected more money into the money supply
      • Global supply chain issues
      • Labor shortages, which are a longer-term driver of inflation
      • The war in Ukraine has interrupted the supply chains of several key commodities. Russia and Ukraine were responsible for 28% of global wheat exports in recent years. Similar patterns are occurring in other commodities, such as metals and chemicals that are used within the supply chain.
      • Energy prices drive up the cost of production, storage and distribution, fuel, electricity and for households.
  • Economic Slowdown
    • There is no doubt that inflation and the corresponding drop in household spending will impact the F&B market. Shopping baskets are getting smaller and more expensive, and affected families will be looking for cheaper substitutes or no substitute at all. Resilience is likely to come from R&D in the sector, with Q1 showing that investors are already backing companies that are innovating against this tough backdrop.

Types of Food & Beverage Businesses We Sell

Food Manufacturing and Processing

  • Baked Goods and Ingredients
  • Better-For-You (Natural/Organic)
  • Branded Processed and Packaged Foods
  • Cereals and Grains Processors
  • Confectionery Manufacturing 
  • Children and Baby Food 
  • Dairy Products
  • Frozen Food Manufacturing
  • General Food Businesses and other Conglomerates
  • General Food Processing 
  • Meat and Seafood Producers and Distributors
  • Pet Food
  • Plant-Based and Free-From
  • Snacks
  • Spices and Condiments
  • Supplements and Nutraceuticals

Technology

  • Food Technology Companies
  • Food Software Companies

Beverage

  • Wineries, Distilleries, and Brewers
  • Non-Alcoholic Beverage Manufacturing 
  • Coffee, Tea, and Energy Drink Producers
  • Beverage Bottlers and Packagers

Wholesale, Distribution and Packaging

  • Logistics and Distribution Providers
  • Grocery Distributors

Retail

  • Online
    • Online Meal Kits 
    • Online Meal and Grocery Ordering and Delivery 
  • Traditional Retail
    • Grocers 
    • Retail Food Stores
    • Vending and Automated Food Services 
A Roadmap to the Successful Sale of Your Business (152 pages)

A Roadmap to the Successful Sale of Your Business (152 pages)

You could spend a lifetime figuring out how to successfully sell your business and still end up confused or clueless. What if you can stop the guesswork and start taking action now?

Read more