Food Industry M&A On Record Low Pace

The Food Institute tracked 59 mergers and acquisitions through the first quarter of 2013, of which 43 were completed and 16 were not finalized. If the current rate were to continue through the end of the year, a total of 236 mergers would be counted, a decline of more than 25% from the previous year.

The Food Institute tracked 59 mergers and acquisitions through the first quarter of 2013, of which 43 were completed and 16 were not finalized. If the current rate were to continue through the end of the year, a total of 236 mergers would be counted, a decline of more than 25% from the previous year. Acquisitions made by investment firms and banks comprised approximately 18.6% of the total M&A volume, with notable deals being the pending Apollo Global Management and Metropoulos & Co. $410 million purchase of Hostess’s baked snack foods business, including the Twinkies brand, and the Joh. A Benckiser Group acquisition of Caribou Coffee Company for about $340 million. 

The second-most active industry category in the first quarter was the restaurant segment, responsible for eight deals. Domestically, a changing business environment and access to capital are accelerating acquisitions in the restaurant industry, Nation’s Restaurant News reported (March 11). Deals in this segment included the Bob Evans Farms Inc. $50 million sale of its Mimi’s Café chain to LeDuff America Inc. in January, and the Ignite Restaurant Group agreement to acquire Romano’s Macaroni Grill for approximately $55 million from Golden Gate Capital in February. Implementation of the Patient Protection and Affordable Care Act is also leading some restaurant operators to put their properties up for sale to avoid potential compliance issues with the mandate. “Many restaurant operators are just beginning to get educated on how they’re going to cope with that cost [for health care]”, according to Craig T. Weichmann, principal at Weichmann & Associates LLC, a boutique investment banking firm in Dallas, speaking to Nation’s Restaurant News. Seen by some small business owners as onerous, the mandate and its related costs may spur more mergers and acquisitions in the restaurant industry leading into 2014, the legislation’s deadline for employer-sponsored health coverage of employees.

On a whole, the mergers and acquisitions business seems to be “stuck in the doldrums,” according to The New York Times, with Thomson Reuters recording 8,115 total deals announced worldwide in the first quarter (April 1). The first quarter of 2013 had the fewest mergers and acquisitions since 2003, and while the combined value of $542.8 billion was an increase of about 10% higher than last year’s first quarter, it remained 26% below the same period’s level in 2011. “The M.& A. market remains uneven,” Scott Lindsay, global head of mergers and acquisitions at Credit Suisse, told the New York Times. “There’s a little bit of everything going on right now. But you would think there would be more activity than there is.”

Despite megadeals such as the $23.6 billion acquisition of H.J. Heinz Co. by Warren Buffett’s Berkshire Hathaway Inc. and Brazilian private equity firm 3G Capital, dealmakers do not think there is currently a global revival in the market, reported The Wall Street Journal (April 1). A lack of resolution in the European debt crisis continues, with Cyprus the latest example of economic insecurity, and disappointing unemployment and job numbers in the U.S. provide no indication that financial uncertainty is easing. Executives are considering the kind of large deals that reshape the landscape, but analysts like Kirkland & Ellis LLP’s David Fox tell The Wall Street Journal that CEOs are waiting for an “external catalyst” to incite action and provide an impetus to dealmaking. 

If executives are prepared to make deals and capital is accessible for increased mergers and acquisitions, one has to wonder what sort of catalyst is needed to start a flurry of M&A activity, as the year has already witnessed the sale of global brand H.J. Heinz and Supervalu’s sale of five retail banners to a Cerberus Capital Management L.P.-led investor consortium for $3.3 billion. Given the lingering doubt over a resolution to the global debt crisis or an accelerating economic rebound, it is possible the near future of mergers and acquisitions in the food industry will be characterized by the few megadeals that grab the attention of investors and the many small, bolt-on acquisitions with limited regional impact.