60-second interview: Gerald Abelson, president, MNC Multinational Consultants
Food M&A: Corporate re-engineering, the rise of gluten-free … and the lure of Croatia?
Can we expect a big upturn in food mergers & acquisitions (M&A) activity in 2012?
I don’t think there is going to be a big upturn in M&A activity in the sector – more of a re-alignment. As for the future, the only thing that is certain is uncertainty, with continued volatility in commodity pricing and depressed consumer confidence in mature markets. I think firms have started to realize that it’s not a case of things ‘getting back to normal’ [after the recession].
What’s driving M&A activity, and what kind of deals can we expect?
Several factors are motivating the big food brands, from the need to boost their presence in faster-growing emerging markets or a desire to get into the growing health and wellness market through acquiring smaller, more innovative companies.
They are also looking at their portfolios and asking how can we increase gross margins and profitability? You saw this with P&G selling off Pringles to Diamond.
I don’t see too many more mega-deals [along the lines of Kraft/Cadbury] in the near future, but I do expect to see a lot more activity in emerging markets, particularly in Brazil as well as China, India and so on. Croatia is also an opportunity because many of the big firms aren’t there – yet.
Will we see more interest in the food sector from private equity players?
The big private equity players seem to migrating more to healthcare or health and wellness, but the problem is that 99% of the firms in this market [in the food space] are little tiny companies and the PE firms are not going in there.
What’s the thinking behind the recent corporate re-engineering at firms like Kraft and Sara Lee? And should other big firms follow suit?
A lot of the big conglomerates are not creating value so they are constantly rearranging themselves [to try and unlock it], but whether this is the right thing to do depends on the company. PepsiCo’s two key product areas are complimentary – snacks and drinks - so I’d never split it up.
But Kraft’s maybe are not – putting cheese in refrigerated counters and cakes on the shelf – they are very different.
It also depends on whether the structures are working. In my experience, in a very big conglomerate everything can get blurred with everyone is fighting over the same dollars, and sometimes a break up can create more focus.
What food categories are investors salivating over?
Health and wellness is definitely where you’ve got to be in the next three-to-five years. But there are a lot of me-too products in this market - do we really need another nutrition bar?
I think a lot of small firms get to $5-8m in sales and then realize that they don’t have the skillset or the distribution [to move to the next level], and this lends itself to a consolidation play.
One category I like is baby food – some of the companies that have come out with all-natural product lines and wholesome baby foods have really grown fast. I’m not so sure about soy [finished products]. I think soy is on its way out.
As for energy drinks and shots, I’m not convinced about the long-term prospects, although products with a healthier slant could have legs.
Gluten-free is a huge growth opportunity, but the market is still very fragmented. The big players want to get in, but they don’t necessarily have to buy other companies to do this – they can develop their own products and just get them co-packed/manufactured by third parties that specialized in gluten-free manufacturing.
