Food Industry M&A in 2019: Key Deals and Emerging Trends

Andy Coyne looks at significant transactions and emerging themes in merger, acquisition and investment activity in the global food sector during 2019.

It hasn’t been a vintage year for food M&A but a number of compelling themes have carried on from 2018 or emerged anew.

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In a piece written this month for just-food, M&A adviser Stefan Kirk noted the value of deals had fallen so far in 2019, revealing he had never experienced such a low conversion rate to concluded transactions.

One reason Kirk gave was that the mega trends among millennial consumers are so powerful now, from superfoods to plant-based proteins, that mainstream M&A activity has somehow been sidelined.

But he also pointed to factors including micro-management and more granular knowledge of companies and categories “causing greater apprehension among senior execs when confronted with the inevitable go- or no-go decisions in M&A transactions, particularly over the critical question of pricing”.

And then, inevitably, there are macro issues such as trade wars and Brexit creating uncertainty and nurturing an environment in which sitting on one’s hands can be the safest position to take.

January saw things getting off to a slow start from a deals perspective but one theme that emerged straight away was large dairy businesses looking for international growth and diversification against a backdrop of low milk prices and the rapid growth of dairy alternatives.

French dairy giant Danone got off the mark with a deal to buy 49% of the New Zealand-based unit of Hong Kong-listed infant-formula business Yashili International Holdings for NZD155.6m (US$103.2m at the prevailing exchange rate), quickly followed by an investment which took it back into the Indian dairy sector, which it exited last year. Danone took a stake in the Indian yogurt business Epigamia, as part of a $25.6m investment round, via its New York-based Danone Manifesto Ventures vehicle.

French peer Lactalis was also on the international acquisition trail, announcing deals in the emerging markets of India and Egypt. It snapped up the dairy business of publicly-listed Indian company Prabhat Dairy and Cairo-based Greenland Group for Food Industries from Middle East food company Americana Group.

Meanwhile, in the US, prepared foods group Hans Kissle was sold to Japanese conglomerate Mitsui & Co. and peer Kenko Mayonnaise for $108m. Mitsui said its acquisition enhanced “its offering of value-added, prepared food products in the large and growing US food market”.

In February, activity did pick up and key themes that would drive food M&A throughout the year began to emerge. Dairy was still at the heart of things but disposals to aid company restructuring and buying into fast-growth sectors also came to the fore.

Loss-making Canadian food manufacturer GreenSpace Brands encapsulated two of these themes. As part of a strategic restructuring process, GreenSpace Brands disposed of its Rolling Meadow Dairy brand to peer Agrifoods International Cooperative subsidiary Organic Meadow Limited Partnership for CAD1.8m ($1.4m).

Another eye catching dairy deal saw another Canadian firm, Saputo, move to acquire UK peer Dairy Crest, the owner of brands including Clover butter and Cathedral City cheese, in a GBP975m ($1.27bn) deal.

Campbell Soup Co. continued its refocusing, a strategy announced in 2018, when it announced an agreement to sell Garden Fresh Gourmet to an affiliate of Fountain of Health USA for an undisclosed sum. The deal was part of its plans to exit the fresh category and withdraw from the international arena.

Buying intro a new, fast growing, category was Anglo-Dutch consumer goods giant Unilever, which acquired UK healthy snacks supplier Graze, which had been majority-owned by private-equity firm The Carlyle Group. Graze was launched in 2008 by a group of friends brought together by Graham Bosher, the co-founder of LoveFilm, originally as a subscription-only service selling boxes of nuts, seeds and similar healthy products.

On a similar track was US food and beverage giant PepsiCo, which spotted an opportunity in the on-trend sports nutrition category. It acquired Muscle Milk brand owner CytoSport from local peer Hormel Foods.

March saw more of the same with US-based confectionery giant Mondelez International looking to the future by taking a minority investment in Uplift Food, a local early-stage start-up focusing on pre-biotic functional foods, through its SnackFutures venture hub and Kavli, the Nordic food manufacturer, striking a deal to acquire Verso Food, a supplier of vegetarian foods based in Finland.

Plant-based businesses would prove a tempting prospect for would-be acquirers during the year and, similarly, but to a lesser degree, cannabis edibles was a decent bet for future growth, especially in Canada.

During the month Canadian confectionery company Choklat sold a 49% stake in its business to local cannabis products firm Namaste Technologies for CAD1.6m ($1.1m). The deal gave Namaste an entry point into the fledgling market for edible cannabis products.

Another notable dairy deal saw New Zealand’s Westland Dairy, the country’s second-largest dairy cooperative, sign a conditional agreement for its sale to Hong Kong Jingang Trade Holding Co., a wholly-owned subsidiary of China’s largest dairy group Yili. The deal, which would be green-lighted later in the year, followed another strategic review. The sale price was NZD588m ($403.7m).

April was a month for ‘Big Food’ deals and it started with a bang with US-based breakfast cereal and snacks maker Kellogg agreeing to sell its cookies, fruit and fruit-flavoured snacks, pie crusts, and ice cream cones businesses to Italy-based confectionery maker Ferrero for $1.3bn. Kellogg wanted to sell this and other business units to “enable the company to bring a sharper focus to its core businesses”.

Dutch food group Wessanen, meanwhile, announced its board had accepted a takeover offer valuing the business at EUR885m ($994.4m). A consortium of private-equity firm PAI Partners and Wessanen’s largest investor, Charles Jobson, teamed up to buy the Amsterdam-listed company.

Campbell Soup Co. disposed of the remainder of its fresh-foods division with the sale of its Bolthouse Farms business to US-based private-equity firm Butterfly Equity for $510m.

And Saputo‘s buying spree continued as it emerged as the winner in the battle to buy the speciality cheese business of Australia’s Lion Dairy & Drinks from Japan’s Kirin Holdings for AUD280m ($196.9m). Kirin put the asset up for sale in October following a strategic review.

In May, another company with a strategy to optimise its portfolio, TreeHouse Foods of the US, announced it was selling its ready-to-eat cereal business to local FMCG peer Post Holdings for an undisclosed sum. The deal has yet to be ratified by the US consumer watchdog, however.

Research released in May suggested UK food M&A activity had hit a nine-year low with continuing uncertainty over Brexit – which was originally due to happen at the end of March – being blamed.

One UK deal that did get over the line, however, was Bakkavor, the private-label food manufacturer, agreeing to acquire desserts business Blueberry Foods from local peer Samworth Brothers for an undisclosed sum.

Another on-trend deal to be announced in May was Japanese grocer Oisix buying US plant-based meal kit provider Purple Carrot, a start-up business which delivers fresh, pre-portioned ingredients so people can cook healthy, plant-based meals at home.

Lactalis opened its chequebook in May, confirming it had acquired Italian cheese maker Nuova Castelli, which had been majority-owned by UK-based private-equity firm Charterhouse Capital Partners.

The search for future growth in exciting category areas or new territories continued in June with Unilever leading a $10.5m funding round in Indian grocery delivery service Milkbasket through its Unilever Ventures arm.

Mondelez, meanwhile, acquired a majority share in local peer Perfect Snacks, which produces chilled nutrition bars, for an undisclosed sum. Perfect Snacks, based in San Diego, California, generated revenues of $70m in 2018 and is growing at a double-digit pace, according to Mondelez.

Confectionery peer Mars also had an eye on the future in June when it acquired a majority stake in Foodspring, a German direct-to-consumer nutrition business. Foodspring will remain a stand-alone business within the Mars Edge division, set up in 2017 and “dedicated to human health and wellness through targeted nutrition”.

Meat businesses have not been slow to notice the rapid rise of plant-based protein alternatives and this was demonstrated again in June when the owners of US-based Jensen Meat Co, acquired local plant-based business Before the Butcher for an undisclosed sum.

July began with a big UK deal as investment CapVest Partners moved to create what it calls a “multi-protein food group” with the acquisition of Young’s Seafood. The deal, struck for an undisclosed sum, was done though UK pork processor Karro Food Group, which CapVest bought in 2017 and came 11 years after CapVest sold Young’s Seafood to another UK private-equity firm, the London-based Lion Capital.

Elsewhere, US firms with restructuring in mind continued to sell assets. TreeHouse reached an agreement to sell its snacks operations to Atlas Holdings for $90m while Campbell announced the sale of its Denmark-based snacks business Kelsen Group to an affiliated company of Ferrero for $300m.

By way of contrast, US peer PepsiCo was in the mood for a major purchase and agreed to buy South Africa-based food and drinks manufacturer Pioneer Foods Group with a deal shaken on for around $1.7bn.

In August, Campbell divested more of its international snacking concerns with the sale of its Australian-based snacks business Arnott’s to private-equity firm KKR for $2.2bn while another US business was also disposing of assets – Hain Celestial selling its Tilda basmati rice brand to Spain-based Ebro Foods for $342m in cash as it continued with a programme to trim its portfolio.

Meanwhile, on the acquisition side of the equation, US confectionery giant Hershey extended its better-for-you portfolio with the acquisition of local snacks business One Brands for $397m while Pilgrim’s Pride, the US poultry supplier majority-owned by Brazilian meat giant JBS, moved to buy UK meat processor Tulip from Danish Crown for GBP290m ($354.1m).

In an all-US deal, The Simply Good Foods Co. acquired fellow better-for-you snacking business Quest Nutrition for US$1bn. The transaction created a nutritional snacking company with estimated net sales of more than $800m.

In September, Ireland’s Valeo Foods Group signed an agreement to acquire Campbell Soup Co.’s European snack assets for GBP66m ($79.6m). Campbell’s European chips business includes UK-based Kettle Foods and Netherlands-based Yellow Chips.

US meat giant Tyson Foods, meanwhile, made another move in plant-based protein alternatives by investing in New Wave Foods, a producer of plant-based shrimp. The deal was conducted by Tyson’s venture capital fund Tyson Ventures, which seeks out “disruptive” food categories. Tyson had confirmed in April it had decided to sell its shares in Beyond Meat ahead of the IPO of the US-based meat-alternatives business.

Healthier ice cream is another growth area and that was not been lost on US-based Wells Enterprises, which added to its ice-cream portfolio by agreeing to acquire the Halo Top brand from Eden Creamery for an undisclosed sum.

On the other side of the planet, China Mengniu Dairy agreed the AUD1.5bn ($1.03bn) takeover of Australian organic infant-formula business Bellamy’s Australia.

In OctoberHain Celestial continued with its asset sales, selling domestic brands Arrowhead Mills and SunSpire to the private-equity-backed Hometown Food Company while another private equity firm, US-based VMG, bought local snacks brand Popchips from the company’s board and investment firm Verlinvest, for an undisclosed sum.

Danone is making sure it is prepared for a future in which non-dairy products play a greater part. This month it took a minority investment in US plant-based organic dairy company Forager Project through its venture capital fund.

Ireland’s Valeo was still in acquisitive mood in October, buying the Matthew Walker Christmas pudding business from UK-based 2 Sisters Food Group.

But, category-wise, plant-based continued to be at the forefront of the deals action as spreads business Upfield Group emerged as the buyer of vegan food brand Violife. Amsterdam-headquartered Upfield, the company behind brands such as Flora and Becel, acquired the owner of the Violife business, Greece-based company Arivia.

November saw Orgain, a US supplier of protein powders, shakes and bars, selling a majority stake in the business to private-equity firm Butterfly Equity. The deal saw Canadian pension fund Ontario Teachers’ Pension Plan become a minority investor in Orgain alongside Dr. Andrew Abraham, a cancer survivor who set up the business in 2009.

Albert Bartlett, the UK potato company, diversified through taking a 40% stake in Kiddyum, a local firm making frozen-food for children.

Meanwhile, Mengniu agreed a second Australia deal in two months when it moved to acquire the rest of Lion Dairy & Drinks, part of the food and drinks business Lion owned by Japan’s Kirin Holdings, for AUD600m ($407.5m),

In December, US baked-goods supplier Hostess Brands entered into an agreement to buy Canada-based wafer and cookie business Voortman from private-equity firm Swander Pace Capital and management for around $320m. Twinkies owner Hostess said the deal provides it with entry into “attractive”, adjacent categories with “better-for-you product characteristics”.

Also in the US, PepsiCo agreed a deal to acquire BFY Brands, home to the brand PopCorners, from private-equity firm Permira. The deal, announced for an undisclosed sum, will see PepsiCo “further deliver” on its “vision to offer consumers more positive nutritious options”.

And today (11 December) came another notable deal in ice cream, with Nestlé striking a deal to sell its ice-cream business in the US to Froneri, the global ice-cream supplier the world’s largest food maker co-owns with private-equity firm PAI Partners.

Froneri, set up in 2016 by Nestlé and PAI Partners, the buy-out house that owned UK-based international supplier R&R Ice Cream, is to pay US$4bn for a business that includes brands like Drumstick, as well as the local licence to Häagen-Dazs.

Three years ago, Froneri combined Nestlé’s and R&R’s ice cream operations in Europe, the Middle East, Argentina, Australia, Brazil, the Philippines and South Africa. Markets including the US and Israel, however, were not part of the deal at the time. Nestlé moved its ice-cream business in Israel into the Froneri venture in July.

Deals to come in 2020?

Last month, it was revealed Biscuit International may soon have a new private-equity owner after the European biscuit maker’s current parent, France’s Qualium Investissement, entered into exclusive negotiations with US-based Platinum Equity over a possible sale.

In December, Dean Foods, the under-pressure US dairy major, started voluntary Chapter 11 proceedings – and revealed it is in talks to sell up to local peer Dairy Farmers of America. A deal has yet to be announced.

Similarly, fellow US business Bumble Bee Foods has filed for Chapter 11 bankruptcy in the face of criminal fines and lawsuits related to a price-fixing case and is in talks with affiliates of Taiwan’s FCF Co. to sell its assets to the company for US$925m.

Shan Foods, a Pakistan-based spices maker, is reportedly mulling a sale of a majority stake, with consumer goods giant Unilever mooted as a possible buyer.

Nestlé was reportedly weighing up options for two of its Chinese business units – Hsu Fu Chi and Yinlu – this year after recent poor performance added to their longer-term woes. And don’t forget Nestlé still has its Herta charcuterie business in Europe under review.

More speculatively, earlier this year UK-based Premier Foods was linked with a sale of its Mr Kipling cake brand after abandoning plans to dispose of its Ambrosia custard line. Premier is still undertaking a strategic review that could culminate in the piecemeal disposal of brands or a sale of the whole company.