Food and beverage M&A update: Q3-2016

Major U.S. indices

The third quarter of 2016 (Q3-2016) showed positive performance for the broader U.S. equity market, as the S&P, DJIA and NASDAQ closed up 3.3%, 2.1% and 9.7%, respectively, for the quarter.

Food and beverage relative performance

As of September 30, 2016, the private label segment, the branded packaged goods segment and the beverage segment of the food and beverage industry exhibited stock gains on a trailing twelve month basis, with the private label and branded packaged goods segments exceeding the returns that were realized by the S&P 500 Index by 2.34% and 0.25% respectively. Although the beverage segment exhibited positive results for the period, it underperformed the S&P 500 index by 1.35%. The natural / organic / healthy living segment exhibited -0.82% return for the period, underperforming the market by 13.75%.

Table 1: Food and beverage relative market performance

Table 2: "Beverage constituents" >

M&A activity

There were 54 reported M&A transactions that closed during Q3-2016. Activity increased from 43 transactions that closed during Q2-2016. Q3-2016 deal volumes remained consistent with the reported transactions for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $1.0 billion during Q3-2016. This marks a decrease from the total deal value of $1.5 billion in Q2-2016. Additionally, we would note that quarters with peak values were driven by large individual transaction that took place during each respective period.

Table 3: Quarterly U.S. food and beverage M&A activity for transactions closed

Source: Capital IQ and Baker Tilly Capital research, September 2016

There were two transactions with reported transactional multiples announced during Q3-2016. One of these transactions had both revenue and EBITDA multiples while the other transaction was limited to only the EBITDA multiple. The one revenue multiple was 1.1x, which was less than the observed historic average revenue multiple of 1.5x. The median reported EBITDA multiple was 11.8x, marginally greater than the observed historic average EBITDA multiple of 11.5x.

Table 4: Quarterly M&A TEV / revenue multiples

Table 5: Quarterly M&A TEV / EBITDA multiples

Source: Capital IQ and Baker Tilly research, September 2016

Commodity prices

Commodity pricing fluctuations depend on supply and demand. Supply factors include subsidies, trade barriers and weather, while demand is impacted by population growth, economic expansion, improved living standards, speculators and the strength of the U.S. dollar. As shown in Table 6, both the food and beverage commodity indices have exhibited a steady downward trend in prices, beginning in approximately Q2-2014 and continuing until Q1-2016 when all three indices showed signs of a slight trend reversal. The reversal has continued into the third quarter of 2016, due to the fact that these commodities offer lower risk than other investments. Table 7 provides the monthly price volatility of the underlying data that was used in indices in Table 6, demonstrating that price volatility remains present with all three commodities.

Table 6: Food and beverage indices value trend

Source: International Monetary Fund
Commodity Food Price Index includes cereal, vegetable oils, meat, seafood, bananas and orange prices
Commodity Beverage Price Index includes coffee, tea and cocoa prices
Commodity Fuel (Energy) Price Index includes crude oil, natural gas and coal prices

Table 7: Food and beverage commodity indices price volatility

Source: International Monetary Fund
Commodity Food Price Index includes cereal, vegetable oils, meat, seafood, bananas and orange prices
Commodity Beverage Price Index includes coffee, tea and cocoa prices
Commodity Fuel (Energy) Price Index includes crude oil, natural gas and coal prices

Notable Q3 Food & Beverage deals >

Source: Capital IQ and Baker Tilly Capital research, September 2016


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