What kind of deals are you expecting in 2011/12 in food and drink?
We are predicting a general rise in M&A activity , and while there will be more smaller deals than big ones, I think there are still some mega-deals out there to be done in food. I think someone will respond to the Kraft/Cadbury deal and I also predict more activity in snacks and beer/spirits.
What is motivating trade buyers in the US food and beverage sector?
I think we’re going to see the big players continue to buy smaller, more innovative companies to round out their portfolios and differentiate themselves in the market, but we will also see more incubator investments, where firms will invest in start-ups with new technologies or ingredients/products, and if they take off, buy them out. It’s a lower-risk approach to innovation.
As the US food and drink market is mature, manufacturers are also keen to grow their presence in faster-growing emerging markets, where there is still a lot of white space. Brazil is red hot right now, but I also expect to see more acquisitions in other markets such as South Africa.
Which product areas are investors most interested in?
Functional foods are appealing, but health and wellness is the real growth opportunity. The baby boomers are a vastly underserved section of the market. But I also expect to see more investment in companies and products that serve ethnic markets.
How attractive are private label manufacturers as investments?
A lot of private equity investors are looking closely at private label as it’s growing and that growth has really accelerated throughout the recession. We’re also seeing some private label brands lose the stigma that was once attached to them.
Is organics a growth opportunity?
Organics is a fickle beast. I’m personally just not sure about it as I think many consumers are still thinking, ‘what am I getting for the premium I am paying?’
How easy is it to access finance to fund deals in the food and drink sector?
The availability of credit for leveraged M&A activity has increased dramatically, but in general, getting capital to fund deals is not a big issue right now. A lot of companies, anticipating the return of inflation, went out and borrowed as much money as they could, even though they didn’t need to [because they anticipated a rise in the cost of borrowing].
Are private equity firms keen to invest in the food and beverage sector again?
Yes, private equity players are definitely back on the scene after a period of less activity.