Canada's population is aging quite rapidly. Statistics Canada reported that in 2016, the proportion of seniors representing the total Canadian population surpassed that of children. Furthermore, since 2011, there has been a rapid increase in the number of Canadians over 65 years of age and leaving the workforce. As explored in a previous blog post, such demographic changes and trends are rather intimately related to merger and acquisition (M&A) activity. In particular, as more and more Canadians reach ages 65 and older, a greater proportion of retiring business owners will consider selling their businesses.
Demographic changes fuel food & beverages M&A
The food and beverage industry is anticipated to especially experience a burst of M&A activity due to the above-mentioned demographic changes. In fact, Deloitte predicted that 2017 would be a "banner year for food and beverage M&A deals" and partly attributed this prediction to the retirement of aging business owners. More specifically, with robust business valuations, retiring business owners in this industry may be more inclined to sell their businesses and plan for retirement.
Consumption patterns require product diversification
Another, demography-related factor that could potentially lead to increased M&A activity in the food and beverage industry is the different consumption patterns and changing tastes of different age groups. This is particularly the case with respect to the wine industry. For example, in the United States, consultants and researchers have found that millennials are less "brand loyal" than baby boomers, with the latter generation exhibiting decreasing wine consumption altogether. Similarly, to the extent that millennials and baby boomers have divergent nutritional requirements, there may be new-found demand for different foods and beverages. In order to accommodate such changes and maintain their relevance in the marketplace, businesses will likely have to diversify their products and services and innovate.
Product innovation versus business acquisitions
M&A equips businesses with the agility to effectively respond to these trends. Specifically, according to Deloitte, businesses may achieve this product diversification "by acquiring smaller businesses and proven brands and pursuing deals that open up new categories and geographies". Such an approach presumably affords the acquiring companies the benefit of the goodwill of the businesses being acquired. Similarly, rather than innovating directly by developing and introducing new products themselves, some businesses are increasingly innovating indirectly by acquiring smaller, yet "trendy" companies.
As Canadian demographics continue to change, it will be interesting to see how companies respond and if such changes will in fact encourage M&A activity in food and beverages and if so, to what extent. Additionally, it is worth noting that while the above discussion focuses on the food and beverage industry, it is quite manifest that changing demographics may affect a variety of other industries and businesses, which will have to respond similarly and perhaps draw upon M&A as a vehicle for doing so.
The author would like to thank Samantha Sarkozi, Articling Student, for her assistance in preparing this legal update.
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