As the New Year unfolds, food and beverage manufacturers are adopting a more cautious and strategic stance towards mergers and acquisitions (M&A) in response to a myriad of challenges. Industry executives are expected to exercise prudence and avoid risky deals in light of factors such as inflation and higher interest rates.
Louis Biscotti, the head of the food and beverage group at national accounting and advisory services firm Marcum, highlighted a growing hesitancy among consumer-packaged goods (CPG) companies to pursue bold acquisitions. Biscotti emphasized that companies will focus on making strategic purchases in trending categories like snacking, frozen foods, and better-for-you options.
Companies in the sector are grappling with various headwinds, including declines in product volume, wage growth, inflation, supply chain disruptions, a slowing job market, and higher interest rates. The increased scrutiny of transactions by the White House for antitrust concerns across multiple industries, including food, is also prompting CEOs to exercise caution in pursuing deals.
General Mills CEO Jeff Harmening emphasized the company’s disciplined approach to acquisitions, stating that they prioritize long-term growth and brand sustainability over short-term gains. Other industry leaders, such as Conagra Brands CEO Sean Connolly, are focusing on improving balance sheets and paying down debt before considering new acquisitions.
Analysts, including Erin Lash from Morningstar, predict that most companies will prioritize growing their existing portfolios in the current environment. The M&A landscape in 2024 is expected to resemble the previous year, with companies seeking acquisitions to enter niche categories or new geographical markets rather than pursuing transformative deals.
The food and beverage sector, once known for significant transformational deals, has shifted its focus to smaller “bolt-on” transactions over the last six years. Companies aim to deepen their presence in specific categories without taking on substantial debt.
While some businesses struggle to innovate quickly, M&A activity is forecast to continue as a means of filling portfolio gaps. Notable deals from the previous year include J.M. Smucker’s acquisition of Hostess Brands and Campbell Soup’s plans to buy Sovos Brands, reflecting the industry’s ongoing strategic realignment.
The food and beverage industry remains dynamic, with companies navigating economic challenges and strategically approaching M&A activities to ensure long-term growth and resilience.