Bob Dekker, Managing Director - Balmoral Advisors

Bob Dekker

Managing Director

Bob Dekker

Managing Director

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As we moved from 2023 to 2024, our team at Balmoral Advisors looked forward to a fresh start along with others in the M&A and capital markets. Having spent much of the past two years closely tracking the impact that macroeconomic trends and Federal Reserve policies had on M&A deal activity in the space, we are ready to shift our attention back to the core drivers of enduring value in the food & beverage industry. We believe that success in this space is driven by brands and products that connect with customers and the implementation of operating efficiencies that contribute to increasing earnings. It is on these critical elements that we will center our efforts as we navigate the promising opportunities of the coming year.

M&A Performance and Investment Trends

In the food and beverage sector, the global market witnessed 376 transactions, demonstrating a 6.5% increase in deal volume from the last quarter. Notably, the Food Products, Distributor, and Retail segments also secured some of the highest valuation multiples observed.

Strategic acquirers, including those platforms backed by private equity, are leading in market deal value, contributing to 80% of total deal volume. The inherent stability of the food & beverage sector, the widespread availability of investment capital, the overall financial health of companies and the prospect of interest rate stability, all combine to create a more favorable environment for M&A activity as we progress through 2024.

Looking at the broader financial landscape, non-bank lenders have continued to step up their loan activity. Meanwhile, the private equity sector is under increasing pressure to deploy its substantial capital reserves, estimated between $2.0 and $3.0 trillion. With the average hold period extending beyond traditional timelines due to pandemic-induced delays, there is growing pressure for private equity firms to accelerate exits from existing portfolio companies while also executing new acquisitions. With so much committed capital waiting on the sideline, we anticipate heightened competition for high-quality deals. Additionally, with non-bank lenders currently holding approximately $7.2 trillion in liquid assets, complemented by a significant $3.5 trillion in reserves held by depository institutions, we believe that M&A transactions in the food & beverage industry will continue to increase.

Consumer Trends Shaping M&A

Beverage Industry Evolution The beverage sector encountered a transformative phase in 2023, as consumer tastes continue to reshape the market. Traditional beverages have been eclipsed by a dynamic array of offerings, tailored to health-aware consumers, environmentally responsible practices, and the latest in production innovation. Notably, we foresee sustained interest in non-alcoholic beverages and internationally inspired flavors.

Plant-Based Products Sector in Flux The landscape of plant-based products is experiencing divergence. While the beverage market is burgeoning with new plant-derived options, plant-based meats are continuing a downward trend. The decline in this previously promising sector has cast doubt over this sector’s long-term appeal, making M&A activity scarce as companies grapple with finding the optimal balance of pricing, taste, and health benefits to foster consumer loyalty. Valuations have suffered, illustrated by Beyond Meat’s stock plummeting from its 2019 high of $222 per share to the current level of $6 per share, leading to a cautious approach in M&A activity within the category.

On the other hand, plant-based beverages are on an upward trajectory, indicating a pronounced shift in consumer preferences. Alternative dairy drinks have achieved notable success, with sales hitting $3.1 B in the last year. Growing consumer awareness of environmental impact and a trend toward healthier lifestyles are likely to sustain this interest.

Protein’s Role in Consumer Health Concurrently, there is a rise in the popularity of plant-derived proteins and protein-enhanced products, driven by a focus on sustained health and wellness in the post-pandemic era. The push for holistic health has propelled what were once specialized nutritional supplements into the mainstream active lifestyle arena. Pea protein, in particular, is emerging as a preferred option, offering both nutritional value and functional versatility. As protein-enriched products integrate into everyday diets, there are expansive opportunities for innovation in this sector, enhancing the market presence of plant proteins.

Other trends that we’re tracking, which we’ll comment on in future newsletters, include the increasing focus on sustainability, nutrition for brain health and longevity, and the acceleration in the growth of selected QSR restaurant concepts.

Outlook for Q2 and Beyond

The Food & Beverage industry’s M&A environment is expected to improve in 2024 due to a stronger economic outlook and stabilizing capital markets. Investors are looking for companies with proven products or concepts, and steady cash flow streams. The early part of the year could present an opportune moment for executives to gear up for M&A transactions, with a promising Q3 and Q4 on the horizon. However, this optimism is balanced by key challenges that may pose obstacles to transaction activity, including the 2024 presidential election, ongoing global conflicts, and decisions by the Fed regarding interest rates.

Let’s Get In Touch

Feel free to reach out to me to continue this conversation. Let’s share insights, discuss opportunities, and collaborate on shaping the future of our industry together. >>>

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