The pull of food and drink brands, the cash they generate and evolving corporate strategies will drive acquisitions, says Liz Claydon, Head of Consumer Markets, KPMG in the UK.
Some famous food and drink brands have found new owners in the last two years. The acquisition of such famous names as Bertolli, Burton’s Biscuit Company, Ribena and Weetabix is, in part, a reflection of evolving corporate strategies. With the big FMCG groups constantly refining their portfolio – and the mood among customers, regulators and rivals changing – businesses that were once deemed core can come to seem peripheral.
“Buyers are attracted by global brands, with resilient cash flows and intellectual property.” - Liz Claydon, Head of Consumer Markets, KPMG in the UK
The intriguing aspect of these transactions is that sellers have so little difficulty finding buyers. The acquirers – be they private equity firms, companies in emerging markets or established players – are attracted to brands with a global resonance, that are stable businesses, generate resilient cash flows, and have the kind of intellectual property and know-how – they can learn from and apply across their business.
This rationale underpinned the acquisition of Weetabix by China’s Bright Foods in 2012. As Bright has also acquired Manassen in Australia and 56% of Tnuva, one of Israel’s largest food businesses, the company certainly doesn’t lack ambition.
The allure of Western food and drink brands with a rich heritage was underlined by Suntory’s acquisition of Ribena last year. Given the synergies between the businesses, it was clear that Suntory could afford to pay a significantly higher multiple than potential bidders in the UK, US and Europe.
Companies in the emerging markets may find it easier to make transformational acquisitions than established players in North America and Europe. KPMG’s own research suggests that most acquisitions do not deliver enduring value for their shareholders and the CEO of an FMCG company would have to make a very compelling strategic case for a colossal, multi-billion-dollar acquisition. Regulators and consumers have become more critical of such transactions, as Kraft discovered with its purchase of Cadbury.
I would expect to see more of the same when it comes to mergers and acquisitions in food and drink over the next year or two. FMCG giants will continue to sharpen their portfolios, companies will look to exit sectors that no longer fit their strategy and will acquire businesses – or facilities – that help them become number one or two in key markets, with Africa and Asia especially high priorities. Private equity firms and companies in emerging markets will always be interested in the right deal at the right price.
The one change we are seeing is a growth in joint ventures, which may occur where companies are keen to share risk and knowledge or where markets converge. In an area such as neutraceuticals, where the health benefits of food are the key selling point, I would expect more alliances between pharma and FMCG firms.
Analysts have long speculated as to whether the food and drink industry will experience the kind of global consolidation that occurred in pharmaceuticals and over-the-counter medicine. Such a shake-up would seem logical, yet food is so deeply embedded in a country’s culture, that consolidation may take longer – and be less uniform – than elsewhere. Companies that ignore these nuances will find it much harder to derive real value from their acquisitions.