Food Industry Mergers and Acquisitions Continue to Rise Amid Credit Turmoil and Foreign Investment


The volume of food industry M&A (Mergers & Acquisitions) transactions has risen consistently over the past several years, according to research conducted by Grant Thornton Corporate Finance (GTCF). In fact, M&A volume has doubled since 2005, from 1,000 to 2,000 transactions in 2007. The GTCF Food Index is comprised of a cross section of food industry participants, which can be broadly classified as food processors, distributors, and retailers.

"While first quarter 2008 is relatively flat in volume, the average deal multiple has gone up. Factors affecting the volume of M&A transactions include the recent credit market turmoil which has impacted the ability of financial buyers to compete with strategic buyers for attractive transaction targets," according to Brian Basil, a director of GTCF. "Also, the appetite among foreign buyers and investors for U.S. food businesses has increased as a result of the weakened U.S. dollar," he added.

Basil suggests that another common theme has been a "flight to quality" among buyers and lenders. Marginal transactions have become more difficult to complete, while high quality companies enjoy robust, even increasing, demand from buyers, keeping multiples up for strong companies.

While food processors, including many of the large branded food companies, have outperformed the broader markets primarily due to strong brands and staple food offerings, food distributors and retailers performed below the S&P 500 index. Rising prices in fuel and commodities have put tremendous pressure on profit margins of both food distributors and retailers.

Consolidation should continue to shape the market. "M&A activity will play a big role, as many of the larger companies will look to augment internal product development with strategic acquisitions and private equity buyers will look for acquisitions of companies with outstanding growth potential. Strong companies will continue to garner relatively high transaction multiples, regardless of transaction volumes," concludes Basil.

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