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.
Sectors: Mergers & acquisitions
US fans of British chocolate imports have taken to social media to vent their frustration after Hershey earlier this week reached a settlement with an importer to stop distributing British-made candy ...
Ads are commonly a bone of contention in this industry, with food manufacturers regularly coming under fire for what they believe is creative use of media. ...
Singapore-based agribusiness giant Wilmar International is to publish more information on how it sources its palm oil, a move welcomed by environmentalists....
- Premier Foods CEO expects UK supermarket rebound
- Why Post is increasing its exposure to cereal
- Briefing: The risks and rewards of e-tail in China
- Unilever must "speed" response to consumer trends
- just-food's pick: Natural Products Expo top 10
- Post Holdings strikes deal to acquire MOM Brands
- Up & Go breakfast drinks set for UK launch
- Crisp maker Sibell acquires Spain's Celigueta
- Hershey linked to takeover of jerky maker Krave
- Greencore expands UK, US sales
- 10 Key Trends in Food, Health and Nutrition 2015
- The Sugar Backlash and its Effects on Global Consumer Markets
- Unilever - Strategy and SWOT Report
- The Future of Retailing in the UK to 2017
- Global Consumer Trend Framework: Understanding Attitudes and Behaviors that Influence Global Consumption Habits