M&A and capital markets update: Food and beverage - Fourth quarter 2015

Major US indexes

The fourth quarter of 2015 experienced positive financial results for the broader US equity market, as the S&P, DJIA, and NASDAQ closed up 6.5 percent, 7.0 percent, and 8.4 percent, respectively for the quarter. Market sentiment for the fourth quarter was driven by positive momentum in the US labor markets as unemployment claims data trended downward for the period. Additionally, the U.S. Federal Reserve Bank had indicated that their data suggested that market conditions had improved to a point where they would reduce their landmark monetary easing policies.  Obviously, January 2016 was a different story.

F&B relative performance

As of December 31, 2015, the “Private Label” segment, the “Branded Packaged Goods” segment, and the “Beverage” segment of the Food and Beverage (“F&B”) industry exhibited stock gains for the year, exceeding the returns that were realized by the S&P 500 Index for the observed period. The “Natural / Organic / Healthy Living” segment exhibited declines during the period, being driven by the collective under performance by all but one of the segment’s constituents, as detailed in Table 2.

Table 1 – F&B relative market performance

Source: Capital IQ and Baker Tilly Capital research, Dec. 2015.
Indices are market capitalization weighted.

M&A activity

There were 50 reported F&B M&A transactions that closed during Q4-2015. Activity decreased from 54 transactions that closed during Q3-2015. The Q4-2015 reported transactions were down from 65 reported deals for the same period in 2014.

The aggregate deal value of the M&A transactions with reported values was $4.49 billion during Q4-2015. This is a decrease from the total deal value of $57.91 billion in Q3-2015 which was largely driven by $55.0 billion merger between H.J. Heinz and Kraft Foods Group. Additionally, it should be noted that quarters with peak values were driven by large individual transactions that took place during each respective period.

Table 3 – Quarterly US F&B M&A activity for transactions closed

Source: Capital IQ and Baker Tilly Capital research, Dec. 2015.

As detailed in Table 4 and Table 5 the Q4-2015 reported median revenue multiple was equal to the historic median revenue multiple, while the median EBITDA multiple was lower than the historic median revenue multiple.

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

Source: Capital IQ and Baker Tilly Capital, Dec. 2015.

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

Source: Capital IQ and Baker Tilly Capital, Dec. 2015.

Commodity prices

Commodity pricing fluctuations are the result of 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, food and beverage commodity indices have exhibited a steady downward trend in prices of each respective basket of goods, beginning approximately between Q2-2014 and Q3-2014. 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.

Noteworthy F&B industry development

*Update to the Q3-2015 development pertaining to Anheuser-Busch InBev NV (“AB InBev”) proposal to acquire SABMiller Plc (“SABMiller”)*: On November 11, 2015 AB InBev made a formal offer to acquire SABMiller for $107 billion. This deal would combine the world’s two largest breweries into one entity controlling approximately half of the industry’s profits. In an effort to gain regulatory approval, Molson Coors Brewing Co. will acquire SABMiller’s 58 percent stake in MillerCoors for $12 billion, giving it full control over brands like Coors Light and Blue Moon. AB InBev will finance part of the transaction from existing resources and third-party debt, for which it had lined up banks to raise $75 billion in debt financing.

Source: Bloomberg.com and Baker Tilly Capital research, Dec. 2015.

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