Lincoln International provides perspectives on the food M&A landscape, including valuations, notable categories, themes where we see attractive investment opportunities and tactical steps that investors can take to win in a competitive M&A process.

Why is competition intense in food M&A?

Structural factors in the M&A market are keeping valuations across multiple sectors — not just food — at healthy levels. These factors include record fund commitments, low (but rising) cost of capital and corporate buyers flush with cash and prioritizing acquisitions to support their growth objectives.

In addition, food is generally a defensive investment — we all need to eat. This stability makes the sector more attractive. This is especially true with recession concerns on the mind of many investors. Despite the inflationary environment (e.g., higher costs for food, labor, packaging, freight etc.), supply chain disruptions and global geopolitical conflicts, food remains an attractive sector for investment.

Where are the opportunities in the food sector?

Based on Lincoln’s food deals and regular dialogue with strategic and financial buyers, several categories and themes resonate with investors, as outlined below:

Snacking

Flavor

• Consumers are increasingly seeking bolder flavors, including ethnic foods from around the world
• Relatedly, consumers are seeking food as an experience, which is reflected by interest in different flavors and ingredients in restaurants

Interest in Flavors and Ingredients on Menu Source: Mintel – Flavor and Ingredient Innovation on the Menu, US 2022

Bakery

• Bakery is a fragmented category with opportunities for investors to explore a roll-up strategy
• There are numerous bakery executives with whom to partner
• Although the bakery category is capital intensive, demand remains strong
• Tight industry supply in certain product categories, may require investment in capacity expansion to support accelerated future growth

Convenience / Solutions

• Chefs — whether in a restaurant or at home — are seeking time- and step-saving solutions in meal preparation
• With rising labor costs, foodservice operators are responding favorably to opportunities to outsource certain steps / processes so they can maintain a thinner “back of house”
• For consumers tired of cooking at home, any solutions that make meal preparation faster and more convenient are in demand

Where are the opportunities of scale?

Scale matters. But assets of scale trade at a premium due to scarcity. If you can’t find a platform of scale, consider creating one. Consider a roll-up strategy to build the platform you envision. Look at smaller opportunities and grow into it. Alternatively, consider corporate divestitures.

Where are there opportunities for multiple arbitrage?

Look where strategic buyers are temporarily distracted. Perhaps the relevant corporate buyers are in divestiture mode. Maybe they are over-leveraged and need to focus on paying down debt. Did a logical strategic buyer recently announce a large acquisition? Perhaps they need to integrate that target and deleverage their business over the next year before resuming their acquisition focus.

These situations create a temporary opportunity to buy without as much concern of being outbid by a strategic buyer, and then when you go to sell in three-to-five years, those strategic buyers may be back in an acquisition mindset, potentially unlocking multiple expansion on your exit.

What does it take to win?

To win in a competitive sale process, you have to play to win. A few strategies to consider include: