Following the sky-high activity from 2021, M&A activity in the food and beverage industry slowed to more sustainable levels in 2022, inching closer to 2019 numbers in terms of deal volume and value. Despite the more moderate M&A activity throughout 2022, some trends coming out of 2021 continued to apply. Here are the four main M&A trends we observed in the food and beverage industry in 2022:
1. CONTINUED CONSOLIDATION BY STRATEGIC BUYERS: STRATEGIC BUYERS REMAIN THE MOST ACTIVE BUYERS IN THE FOOD AND BEVERAGE INDUSTRY
In 2022, there was continued consolidation of strong and growing
brands in the food and beverage industry. Strategic buyers,
including portfolio companies primarily owned by private equity
investors, were predominantly driving the M&A activity in the
food and beverage industry.
In the second quarter of 2022, 74% of the total transaction volume
in the food and beverage industry was driven by private strategic
buyers, which represented a 4% increase from the first quarter of
2022. In the first half of 2022, financial buyers participated in
only 10.3% of all closed transactions, whereas strategic buyers
participated in 81%. In acquiring their competitors, these
strategic buyers continue to take advantage of the opportunity to
expand their market share within the food and beverage industry.
Throughout 2023, we anticipate further consolidation by strategic
buyers within the food and beverage industry backed by private
equity investors with excess capital.
2. DECREASE IN DEAL VOLUME AS COMPARED TO 2021
In contrast to 2021, there was a substantial decrease in deal
volume in the food and beverage industry in 2022. In the first half
of 2022, there was decrease of approximately 30% in reported
transactions as compared to the first half of 2021. In both Canada
and the U.S., there was a decrease in transaction volume between
the first and second quarters of 2022. This decrease was much
steeper in Canada, where transaction volume in the first quarter of
2022 was 27.3% less than the previous quarter. Additionally, the
first half of 2022 had the lowest volume of deal activity when
compared to the first half of each year beginning in 2018.
Though there may be a myriad of reasons for the decrease in deal
activity, recent macroeconomic and geopolitical factors have likely
played an instrumental role. The recent geopolitical uncertainty
caused by the invasion of Ukraine, rising interest rates and its
impact on consumer preferences, inflationary pressures, shifts in
labour costs, and disruptions in the supply chain provide some
explanation for the decrease in M&A within the food and
beverage industry. If the uncertainty in the market does not cease
in the near future, a continued decrease in deal volume may persist
through much of 2023.
3. DECREASE IN DEAL TRANSACTION VALUE COMPARED TO 2021
In addition to a decrease in deal activity, 2022 also reported a steep drop in deal transaction value when compared against 2021. In Canada, the second quarter reported a 49.8% decrease in the aggregate transaction value of deals when compared to the previous quarter. The first half of 2022 reported the lowest aggregate deal value as compared to any first half of the year in the last five years. The aggregate value of M&A deals closed within the food and beverage industry in the first half of 2022 was C$4.7-billion, which was a 66% decrease from the C$13.9-billion reported in the first half of 2021. This decrease was also reported for middle market M&A transactions, where the first half of 2022 reported a 70% decrease in total deal value compared to the first half of 2021.
4. BRANDED PACKAGED GOODS, FOLLOWED BY BEVERAGES, ACCOUNT FOR THE LARGEST PERCENTAGE OF DEALS CLOSED IN 2022
In 2022, the branded packaged goods sector of the food and beverage industry continued to experience strong deal activity. To no surprise, the M&A landscape in the first half of 2022 was led by branded packaged goods, which accounted for 39.7% of deals closed. The beverage sector, including both alcoholic and non-alcoholic beverages, immediately followed and accounted for 32.8% of deals closed. Despite decreases in deal activity in other sectors of the food and beverage industry, the beverage sector experienced an increase in deal activity in the second quarter of 2022, as compared to the first quarter. We anticipate the branded packaged goods and beverage sectors to continue to grow and lead M&A activity in 2023.
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