Perspectives

Balmoral Advisors

Editorial Team

Balmoral Advisors

Editorial Team

In Q1 2023, the U.S. food and beverage (F&B) industry experienced a slowdown in mergers and acquisitions (M&A) activity as a result of rising interest rates and investors’ growing caution in the face of escalating costs of raw materials and labor.

During Q1 2023, there were 105 M&A transactions in the U.S., an ~7% decrease compared to Q4 2022, which saw 113 transactions. Within the F&B sector, M&A deals that disclosed multiples transacted at an average EV/EBITDA multiple of 23.4x due to the ~$1.5 billion acquisition of United Malt Group (UMG) by Malteries Soufflet SAS. The highest transaction volume came from the restaurant segment with 30 transactions, followed by food products with 27 transactions. The total transaction value for Q1 2023 was $2.4 billion, a substantial reduction from $27.2 billion in Q4 2022, which was influenced by Kroger’s $24.6 billion acquisition of Albertsons.

The relative stock price performance of the F&B industry has outperformed the broader S&P 500 index, which has been declining since the start of 2022. By the end of Q1 2023, publicly traded food retail and restaurant businesses outperformed the S&P 500, indicating growing investor confidence in these companies. Meanwhile, publicly traded beverage companies topped the charts in terms of median TEV/EBITDA multiple, which stood at 19.6x.

The ongoing interest in wellness and health food remains strong among consumers and investors, leading to a surge in popularity for “better-for-you” products. These products are healthier alternatives to traditional F&B offerings and are sought after for their contributions to overall wellness and immune system support. Examples include kale chips or baked potato chips replacing traditional potato chips and spaghetti squash or spiralized vegetables as a healthier alternative to traditional pasta. Consumers are not only more health conscious, but also more price conscious. Consumers are seeking to save where they can, with a noticeable shift in spending to more affordable “private label” alternatives.

Globally, in Q1 2023, 304 M&A transactions were announced and closed at an average TEV/Revenue and TEV/EBITDA multiple of 1.2x and 8.5x, respectively. Strategic buyers still account for the majority of M&A activity (79%) in the F&B space with the trend expected to continue. Interest rate hikes have had a cooling effect on leveraged buyouts by financial buyers. Large, publicly traded F&B companies have shifted their focus from market share to profit margins to enhance investor confidence. Consequently, this opens up an opportunity for smaller brands to increase their market share by sacrificing margins and catering to increasingly cost-conscious consumers.

Private equity activity has decelerated compared to its record pace in 2021, although bolt-on acquisitions continue to be an essential strategy for sponsors with existing platform investments. We expect activity to continue to pick up throughout 2023 as the economic environment improves and a large number of Baby Boomers reach their retirement age and seek to sell their businesses.

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