Food and beverage M&A update - Second quarter, 2016

Major US indexes

The second quarter of 2016 (Q2-2016) showed mixed performance for the broader US equity market, as the S&P and DJIA closed up 1.9 percent and 1.4 percent, respectively; while the NASDAQ closed down 0.6 percent for the quarter. The second quarter market results reflected significant volatility with market sentiment being driven by both political and economic uncertainties related to the US political cycle and softening macro growths expectations. This volatility is most likely attributable to Great Britain’s decision to leave the European Union, popularly known as “Brexit.”

Food and beverage relative performance

As of June 30, 2016, the “private label” segment, the “branded packaged goods” segment, and the “beverage” segment of the food and beverage (F&B) industry exhibited stock gains on a trailing twelve month basis, exceeding the returns that were realized by the S&P 500 Index for the observed period by 11.8 percent, 14.5 percent, and 9.7 percent respectively. The “natural, organic, and healthy living” segment underperformed the market by 18.7 percent during the period, being driven by the collective decline by all but one of the segment’s constituents. Despite this decline, we note that this segment nearly reached an all-time high in February 2015. The segment has since undergone a period of normalization, resulting in the substantial decline presented in the chart below.

Table 1 – F&B relative market performance

Indices are market capitalization weighted.


M&A activity

There were forty-three reported M&A transactions that closed during Q2-2016. Activity decreased from fifty-one transactions that closed during Q1-2016. The Q2-2016 reported transactions were down 4.4 percent from forty-five reported deals for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $1.5 billion during Q2-2016. This marks a decrease from the total deal value of $21.3 billion in Q1-2016. Despite the significant decline in aggregate transaction value, it should be noted that a majority of the previous quarter’s aggregate value was driven by the $14.3 billion acquisition of Keurig Green Mountain by Acorn Holdings. 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 US F&B M&A activity for transactions closed

Source: S&P Capital IQ and Baker Tilly Capital research, June 2016


As detailed in Table 4 and Table 5 there were only two Q2-2016 transactions with reported deal revenue multiples, and none with reported total enterprise value to EBITDA multiples. The reported revenue multiples were slightly below the historical median multiple of 1.5x revenue.

Table 4 – Quarterly US F&B M&A TEV / revenue multiples

Source: S&P Capital IQ and Baker Tilly Capital research, June 2016

Table 5 – Quarterly US F&B M&A TEV / EBITDA multiples

Source: S&P Capital IQ and Baker Tilly Capital research, June 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/weakness of the US dollar. As shown in Table 6, both the Food and Beverage Commodity Indices have exhibited a steady downward trend in prices of each respective basket of goods, beginning in approximately Q2-2014 and continuing until Q1-2016 when all three Indices showed signs of a slight trend reversal. The slight reversal has continued into the second quarter of 2016, perhaps due to the fact that these commodities are perceived to have 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 each respective commodity index is impacted by a measured degree of volatility.

Table 6 – F&B 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 price  

Table 7 – F&B 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 price  

 

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