Blog: Food company interest in M&A to continue to climb - EY
Dean Best | 22 July 2014
There has been an increase in M&A among companies in the food sector in recent months - and management consultants at EY expect to the trend to continue.
Analysts at EY publish data on deals in the consumer products sector each quarter and their latest numbers, issued today, showed the value of transactions hit a six-year high in the second quarter of 2014.
EY said the value of deals in the industry in the three months to the end of June hit US$57bn, up from $41bn in the first quarter.
Andrew Cosgrove, consumer products lead analyst at EY, said food companies were involved in eight of the ten largest deals in the consumer products space.
"Food manufacturers are pulling the ripcord on M&A as they struggle to grow revenues and increase margins. Despite the fragile economic recovery in mature markets, operating fundamentals at many food companies remain weak and profit warnings are likely to increase," Cosgrove told just-food this afternoon.
According to the EY data, the top ten deals in value terms in the second quarter included transactions struck within the food sector, including Post Holdings' acquisition of chilled foods group Michael Foods in the US and Mizkan's purchase of Unilever's cooking sauces business in North America.
However, the list also shows deals made by food majors outside the industry, demonstrating a hunger among some to seek expansion in faster-growing sectors. Mars' deal to buy Procter & Gamble's pet food business and Nestle's move to buy skincare assets from Valeant Pharmaceuticals International.
"M&A activity is driving stock performance as companies seek to optimise their brand portfolios, divest non-core commoditised assets and acquire businesses in faster growing or higher margin categories and markets," Cosgrove said.
Among industry watchers, there has been some reflection on the multiples some buyers are prepared to pay, a trend Cosgrove also noted.
"The scarcity of available quality assets is driving up multiples but these are expensive, not extreme given the cheap availability of debt. Indeed, in the rear view mirror, many eyebrow-raising multiples of the past now look cheap," he said.
However, the EY analyst expects M&A activity to intensify - and points to potential competition for assets.
"We expect deal activity to continue to climb with the potential of greater private equity involvement in the next few quarters," he added.
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