US food industry primed for deals in 2010

March 19, 2010

According to Reuters, the U.S. food industry is in store for a plethora of mergers and acquisitions as companies look to gain more revenue and earnings growth and new, innovative products. After starting the year with mega-deals like Kraft Foods Inc.’s $18.6 billion purchase of Cadbury, the food and beverage industry has room for other large tie-ups, industry bankers and consultants told the Reuters Food and Agriculture Summit in Chicago, Ill. this week. The private equity sector could focus on deals in the $3 billion to $5 billion range.

“I think it will continue to be an extremely active year in mergers and acquisitions,” said Greg Pearlman, Managing Director and Head of the U.S. food and consumer group for BMO Capital Markets.

Industry executives cited companies ranging from Monster energy drink maker Hansen Natural Corp. to Molson Coors Brewing Co. and grocery store chains as prime takeover targets.

So far this year, the consumer staples sector represented 11.5% of all U.S.-related M&A, up from 0.9% in the same period a year ago, according to Thomson Reuters data. It marked the fourth most active sector for M&A this year. The value of deals grew exponentially to total $29.1 billion, up from $1.4 billion a year ago.

This year’s totals were buoyed by deals such as Kraft’s four-month battle to acquire Cadbury and Coca-Cola Co.’s move to take over the North American operations of its top bottler, Coca-Cola Enterprises Inc., for $13.4 billion.

Pearlman sees deals in the area of consumer staples, such as food and grocery stores, rather than in areas of discretionary spending.

“Everyone has got to eat, so that’s where we start,” he said. “The more discretionary we get, the harder it is to project and harder to get someone to open their wallet and the harder it is to get the financing you need.”

Reuters article