How M&A in packaged food looked in H1 2019

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Ferrero paid $1.3bn for Kellogg assets including Keebler brand

Ferrero paid $1.3bn for Kellogg assets including Keebler brand

Using data from just-food.com and parent organisation GlobalData, we present a flavour of M&A activity in the international packaged food sector in the first half of the year.

The number of M&A deals in the international packaged food industry in the first half of 2019 grew by more than 4% year-on-year, according to data from GlobalData and just-food.com, buoyed by an increase in activity in Europe.

The data centres on transactions involving a change of ownership in at least the majority shareholding of a total company and also takes in the sale of subsidiaries, divisions and brands.

The deals monitored also focus on those involving packaged food manufacturers and excludes transactions between suppliers into the sector and those involving drinks companies.

In the first six months of 2019, some 232 such deals were announced, up on the 222 unveiled in the opening half of 2018 – but still down on the 236 brokered between the start of January and end of June 2017.

Packaged food industry M&A deal volumes H1s 2015 to 2019

Source: GlobalData and just-food.com

Of the 232 transactions announced in the opening six months of this year, 95 involved targets headquartered in Europe, up sharply from 77 in the first half of 2018. North America also saw an increase in deals.

Packaged food industry M&A deals by region H1s 2015 to 2019

Source: GlobalData and just-food.com

Based on GlobalData’s sector categorisation of the packaged food industry, the dairy and soy-food industry saw 39 deals, compared to 28 a year earlier. There were also 39 transactions in the combined bakery and cereals market, up from 34 year-on-year. 

The meat industry was the second most active, with 37, which was again an increase on the first six months of 2018, when 34 were announced.

Packaged food industry M&A deals by sector H1s 2015 to 2019

Source: GlobalData and just-food.com

Looking at the deals unveiled in the first six months of 2019, a number of the more eye-catching transactions did take place in Europe.

In February, Canada’s Saputo, one of the world’s top-ten dairy companies, announced its return to the region after a five-year absence with the acquisition of UK firm Dairy Crest.

Saputo struck a deal that valued the London-listed business at GBP975m (then US$1.27bn). The acquisition raised eyebrows given the intensely competitive nature of the UK dairy market but some industry watchers believed Dairy Crest’s own recent restructuring had left it with a portfolio of attractive branded positions.

Two months later, the board at Netherlands-based food group Wessanen – home to brands from Bjorg baby food, through Mrs Crimble’s cakes to Whole Earth peanut butter – accepted an EUR885m (then US$994.4m) bid to be taken private.

PAI Partners, a regular private-equity investor in the food industry, teamed up with Wessanen’s largest shareholder Charles Jobson to acquire Wessanen, a business that had seen sales come under pressure in recent quarters.

Some analysts argue Wessanen has too many brands and could therefore focus attention on its biggest assets at the expense of smaller, less growth-driven brands. Others contend Wessanen should look to buy more assets to differentiate itself from the rising competition in the European organic food market and in healthier categories more generally.

And there were questions about whether Wessanen should have gone private and not tried to pursue its growth strategy as a public company.

And, staying in western Europe, in late May, Spain-based manufacturer GBfoods announced it had struck a deal to acquire European peer Continental Foods from private-equity firm CVC Capital Partners.

Terms were not disclosed but Reuters reported in April CVC was in talks to sell a business that could be worth around EUR1bn.

Soups-to-sauces maker Continental Foods was at one time part of Campbell Soup Co. before being taken over by CVC. The company generates a turnover of around EUR400m and owns brands such as Davos Lemmens, Liebig, Royco, D&L, Erasco and Blå Band. It mainly operates in five European markets – France, Germany, Sweden, Finland and Belgium. GBfoods booked turnover of EUR758m in 2018.

The deal gives Gbfoods another geographic territory – France – to add to its business and the company emphasised how the combined business would be “a diversified business platform fully focused on developing strong local brands”. 

Across the Atlantic, meanwhile, Unilever continued its strategy of buying smaller food businesses operating in buoyant parts of the market with the acquisition of Olly Nutrition, a fledgling US business supplying products from vitamins to protein powders and snack bars.

Based in San Francisco, Olly Nutrition was set up in 2014 and sells gummy vitamins and supplements, as well as protein powders and snack bars. Its retail customers include drug-store chain Walgreens, Walmart, Target and Whole Foods Market.

The deal, of course, will not be material to Unilever in the short (or even medium) term but was another sign the FMCG giant was prepared to continue investing in expanding its food business via M&A, even if some in the City would prefer to see it focus squarely on home and personal care.

The first half of the year saw a deal PepsiCo announced in December – the acquisition of the UK’s Pipers Crisps – cleared by the country’s competition watchdog.

Less than a month later, the US food and beverage giant made a move at home, buying Muscle Milk maker CytoSport from Hormel Foods.

CytoSport had appeared a slightly strange fit for Hormel, a business anchored in meat products but which has tried to diversify in recent years (US nut-butter maker Justin’s, another acquisition, remains part of the portfolio).

PepsiCo paid $465m for CytoSport, giving it ownership of a business for which it had been a long-standing distribution partner. PepsiCo will be hoping to turn around the fortunes of CytoSport, which has seen some pressure on sales at times over the last 12 months.

The opening six months also saw Campbell Soup Co. continue its efforts to reshape its portfolio. During the period, Campbell, which has spent much of the last 12 months selling assets, manage to find buyers for all its fresh-foods businesses.

The early weeks of the second half of the year has also seen the US manufacturer complete the sale of Campbell International division – with potentially another business unit to follow.

However, a year since Campbell announced the results of its strategic review of assets, plenty of hard work still lies ahead, navigating what are seen as challenging categories in the US.

And, when taking into account confirmed deal values, it was in North America that we saw the transaction with the meatiest price tag during the first half of 2019.

In April, Ferrero made yet another acquisition in the US, snapping up a range of assets from Kellogg.

The Italy-based confectioner bought Kellogg’s cookies, fruit and fruit-flavoured snacks, pie crusts and ice cream cones businesses for $1.3bn.

The deal meant Ferrero moved to build on an operation in North America that had been expanding noticeably in recent years via M&A. In 2018, the Nutella maker bought the US confectionery business of Swiss food giant Nestlé and, the previous year, acquired Illinois-based Ferrara Candy Co. and Fannie May Confections Brands.

For Kellogg’s part, the Special K and Pringles maker said offloading brands like Keebler cookies would mean “reduced complexity, more targeted investment and better growth”.

How the assets that changed hands were performing was not disclosed but, when Kellogg published its half-year results earlier this month, the company’s CEO, Steve Cahillane, insisted the deal meant the group was “more focused on our most advantaged brands and categories with a better growth profile and higher profit margins”.

Nevertheless, Ferrero will be hoping its new assets can benefit from – and contribute to – what is now a notable snacks-focused organisation in the US. 

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