Food and drink M&A to rise as big guns dip into $30bn warchest

By Elaine Watson

- Last updated on GMT

Related tags: Private equity

Deal or no deal? M&A activity in consumer goods is set to rise in 2011/12, predicts Deloitte
Deal or no deal? M&A activity in consumer goods is set to rise in 2011/12, predicts Deloitte
The top 10 publicly quoted food and drink companies in the US are sitting on a whopping $30.1bn in cash – and looking to spend it – according to corporate finance experts at Deloitte.

Several factors were motivating the sector’s biggest guns, from the need to boost their presence in faster-growing emerging markets to the desire to gain a foothold in exciting niche areas in mature markets through acquiring smaller, more innovative companies or brands, said Deloitte.

Healthy snacks, functional foods, energy drinks, ready-to-drink beverages, dried fruit/nuts and premium teas were top of the shopping list, said Deloitte, but renewed interest from private equity investors was driving up prices in some of the more sexy areas of the market.

Longer term, fears over food security and the need to ensure a consistent supply of raw materials could also drive more mergers & acquisitions (M&A) activity as packaged food manufacturers followed the lead of fast food firms and become more vertically integrated, predicted Deloitte in its new report, ‘M&A in Consumer Business’.

Money doesn’t talk, it swears …

On a more practical level, an increase in deals was a simple reflection of increased access to the money needed to finance them, noted Deloitte.

If money was sloshing around in bucketloads to fund deals in the heady days of 2005-8, it was much harder to come by in 2008/9, and not surprisingly, deal activity was correspondingly sluggish (786 deals in US consumer products sector in 2010 vs 582 in 2009), said Deloitte.

However, the tide had turned in 2010 as confidence returned: “M&A activity is on the rebound and several market dynamics indicate a furthering of conditions that could support a continued uptick in 2011 and beyond.”

In particular, private equity players were back on the scene with a vengeance after months of inactivity, equity markets had come back significantly and lenders had begun lending again, said Deloitte. “Theavailability of credit for leveraged M&A activity has increased dramatically.”

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