In a response to shifting consumer demands and strategic business needs, food and beverage companies are readjusting their merger and acquisition strategies to remain competitive.
While M&A activity in that sector has slowed considerably in 2024, recent moves signaled two clear trends: a focus on streamlining core brands and capturing the convenience- driven snack market.
CoBank, one of the largest private credit providers to America’s rural economy, “delivers loans, leases and other financial services to agribusiness, rural infrastructure and Farm Credit customers in all 50 states,” its website states.
According to a Co-Bank’s Knowledge Exchange report, food and beverage companies are streamlining their product portfolios by dropping brands that don’t align with their core strengths. Meanwhile, acquisitions have largely been in response to growing consumer demand for grab-and-go convenience and healthier snacking.
“There’s a common strategic focus that underpins the majority of M&A activity in recent months,” said Billy Roberts, an economist with CoBank. “Food and beverage manufacturers are increasingly applying the 80/20 rule and devoting more attention to the 20% of their core brands and categories that account for the lion’s share of company revenue.”
Roberts noted that recent deals have exemplified this trend of driving M&A into the food sector. General Mills sold its Yoplait, Go-Gurt, and Oui brands, focusing on other products with better margins. Meanwhile, Hershey’s purchased two popcorn operations to increase their production capacity for SkinnyPop, reflecting the cultural trend toward healthier snacking.
2024 M&A pacing in the sector has trended much slower compared to recent years. The average number of deals by quarter in the first half of the year was down almost 40% from the 2021-23 average. However, some indicators are suggesting a rise in activity. Expected interest rate cuts are poised to lower the cost of capital to finance acquisitions. Additionally, recent earnings calls have shown executives from Mondelēz International, General Mills and other consumer packaged goods firms are open to M&A activity.
“Ironically, M&A within the food and beverage space has mirrored overall CPG activity in recent years, namely lower volume and higher prices,” said Roberts. “The majority of sales growth for food and beverage brands has stemmed from price inflation. As that eases, companies are feeling the pressure to return to profitable volume-led growth.”
Acquisitions are reducing some of the pressure that has been put on the R&D (research and development) departments of manufacturers to innovate. However, several recent acquisitions have been smaller—a trend is likely to continue. Roberts concluded by saying that manufacturers at the smaller end of the spectrum – regardless of food or beverage category – can find opportunities with larger companies looking to acquire innovative products.