CLEVELAND — Expect “continued strong” acquisition activity in the food and beverage industry in the coming year, said Glen Clarke, managing director and head of food and beverage investment banking at KeyBanc Capital Markets, Cleveland.
“Food companies are trading at all-time highs, so they’ve got plenty of capital leverage,” Mr. Clarke told Food Business News. “I continue to see the strategic buyers being active. There are still 150 to 200 food companies owned by the private equity community, and as we know, those companies are always for sale. We’re going to continue to see those companies feeding into the M.&A. market, driving the continued M.&A. activity.”
However, a significant increase in interest rates may dampen M.&A. activity, he said.
“As rates rise the cost of capital goes up, which prohibits companies from paying high multiples,” Mr. Clarke said. “So as rates go up, multiples will come down, which will mean fewer people will be interested in selling as multiples soften.”
Strategic buyers are seeking better-for-you brands in particular, Mr. Clarke noted. A recent example is Parsippany, N.J.-based Pinnacle Foods’ $975 million acquisition of Boulder Brands, which manufactures products under the Udi’s, Glutino, Evol and Smart Balance brands.
“That’s how they satisfy the equity analysts,” Mr. Clarke said. “They’re driven by that consumer trend of better-for-you, all-natural, healthier products, and a lot of them didn’t have that in their product offerings.”