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2012 set to see some heavyweight M&A activity? Definitely, say leading food market analysts

1 commentBy Jane Byrne , 21-Dec-2011
Last updated the 21-Dec-2011 at 13:58 GMT

Unilever to shed food side...? CSM to be split up..? Speculation continues
Unilever to shed food side...? CSM to be split up..? Speculation continues

Is there appetite for M&A activity in 2012? Food market watchers reckon the sector could see some heavyweight deals next year despite the on-going credit lending challenges.

A lot of companies still have the “battening down the hatches” mentality but many food businesses are doing well and are sitting on a lot of cash, said Julian Wild, food group director at law firm Rollits.

Frustrated at the lack of opportunity for organic growth, he told FoodNavigator.com he expects companies will look to expansion through acquisition in 2012.

“Many private equity firms will want to dispose of food businesses that didn’t deliver,” added Wild, citing a number of deals that did not work out for investors such as the purchase of UK biscuit maker Burton’s Foods by private equity group, Duke Street Capital.

Commodities hikes squeezing margins

Trefor Griffith, head of food and beverage, at Grant Thornton UK, in a recent food industry outlook report: Managing through uncertainty: Food and beverage industry in transition, echoed Wild’s views.

He said there are businesses that are struggling and banks are not supporting them. “But if you are looking at M&A activity, especially at the larger end, there is money available.”

And the outlook, in terms of consolidation, is probably strong due to cost issues, added the Grant Thornton food sector specialist.

Vincent Frambourt, partner at Grant Thornton France, in the same report, notes that large food and beverage companies in France are still structured around brands. “As it gets more difficult to create or develop brands, they are looking to M&A as a means to expand their portfolios.

He said that there is increasing price pressure from large retailers — such as Carrefour and Groupe Auchan — that dominate consumer food markets and largely control pricing in the country. “Commodity prices are really getting high, and companies are not maintaining their margins,” added the French market specialist.

Which firms are vulnerable?

In terms of which ingredient suppliers may be vulnerable to takeover next year, Wild said a break-up of Dutch group CSM might be possible. “The company’s acquisition splurge in the bakery segment left it over-extended,” said the industry insider.

CSM has issued a number of profit warnings in the past six months and Wild notes: “Once bad news starts to take hold, it is pretty difficult to shift shareholder focus away from that.”

Speculation was rife back in January this year that food giant Cargill would bid for UK-based Tate & Lyle. In a note that month, MF Global city analyst Andy Ford said he saw Cargill as a “potential bidder” for Tate and Wild at that time agreed that Tate could be vulnerable to acquisition.

But speaking to this publication today, the Rollits food industry expert said that such a merger was now “less likely”.

“Tate is performing quite well, with a pretty decent management team there now,” said Wild, who estimates that it is Cargill who is now in a less strong position that it had been a year ago.

Kraft split mimicry

The Kraft model of splitting its traditional US business and snacks side could engender some copycat activity from the multinationals, said the Rollits food sector expert. “The Kraft CEO has decided to focus on growing the global snacks business and a lot of private equity firm interest is expected in 2012 in its US grocery segment,” he said.

If that happens, Unilever will probably follow suit and shed its condiments business, if not its complete food portfolio, forecasts Wild.

He also rates the management team at Premier Foods and reckons the disposal of its non-core businesses in the shape of Brookes Avana and the Irish units was a sensible move “Its essentially a survival strategy. Premier is desperate for cash. But the question is how, following these divestments, is the team going to be able to take the profits forward?”

Chilled foods mergers ‘surprising’

Wild remarks that the most surprising and interesting M&A development in the food sector over the past 12 months, if very much a UK phenomenon, has been the consolidation in the chilled private label area.

2011 saw Boparan win the scramble for Northern Foods, and Greencore ending up with the consolation prize in the shape of Uniq. “Supplying the UK multiples, you need to have clout - you need to be bigger - hence the drive for greater alignment in the chilled foods area,” notes the Rollits spokesperson.

1 comment (Comments are now closed)

Good Article

Good to read regarding potential for increased m&a activity in the food industry for 2012.

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Posted by AdityaJayaram
21 December 2011 | 14h22

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