When it comes to mergers and acquisitions, food companies can no longer be couch potatoes, and they know it. They’re on the move — whether it be for mega-mergers to cut costs and enhance profit, or for newer, growing brands that will meaningfully reverse a trend of stagnating sales.
Danone, a $47 billion dairy company looking at flat revenue this year, snapped up one of the most desirable targets in the space with a $12.5 billion deal last week for Denver-based WhiteWave Foods and its fast-growing Silk line of milk alternatives. That followed recent news that Hershey is being stalked by Oreo maker Mondelez.
Other notable transactions include frozen-food company Pinnacle Foods’ purchase of Boulder Brands in January to add natural and gluten-free products, and a host of deals recently for smaller brands.
This flurry of transactions tells us a lot about the future of the food industry — and how concerned some of these companies are about it. They’re finally embracing the fact that consumer tastes have changed, with the focus now on healthy-ish stuff and also convenience. It’s touching every part of the food industry, which is why we’re seeing so many deals regardless of the product category.
Globally, the food industry struck more than $300 billion of mergers and acquisitions since the start of 2014. Last year, which holds the annual record, was when Heinz and Kraft Foods combined to create a $109 billion behemoth. Even after that massive transaction, it’s likely Kraft Heinz Co. will attempt another big deal. Best guess? General Mills.
The benefits of those mega-mergers — mainly scale and synergies — won’t be as enduring as the growth that will come from many of the somewhat smaller transactions, such as Danone’s WhiteWave purchase. The bigger packaged-food companies are skewed toward conventional products, whereas the up-and-comers were early movers in organic and natural.
This also means the tables are turning in M&A negotiations. Particularly attractive sellers are in the driver’s seat and are pushing for high valuations. The deal-fueled rally in food stocks may not be sustainable because fundamentals are no longer reflected in these rich prices.
Even so, don’t expect the M&A activity to slow down any time soon. These food giants still have gaping holes to fill, and they’ve got the cash to do it.
