Health food and drink, craft brewing, and fresh produce look set to drive future M&A activity, according to a new report from Pitcher Partners.
Pitcher Partners, an association of independent firms, reports that there was $600 million of M&A activity in the food and beverage sector in the first-half of 2018, following on from a bumper $2.8 billion in 2017.
Three big deals, the acquisition of Koroit dairy facility, Noisette bakery and Darrell Lea Confectionery, drove up the proportion of consumer sector deals in the food sector, according to the report. Nearly two-thirds of consumer deals by value were in the food sector in the first half of 2018, well above the long-term average of 15-20 per cent.
The rising domestic demand for craft beers also looks set to become a catalyst for future activity, according to Pitcher Partners Melbourne partner – corporate finance Michael Sonego.
The nation’s reputation for high quality produce continues to make this sector a key target for M&A opportunities, he said, along with health food and drink.
“We have had private equity firms in here every week looking at the health food and drink category. It is increasingly on their radar,” he said.
According to Sonego, total M&A deals this year may not match 2017, but momentum was building due to demand for high quality Australian food products, particularly from the Asian market.
“This year is likely to be a little down on 2017 but we are seeing it leading towards a very strong 2019,” Sonego said.
“So, you have the private equity firms, but also the larger international players – it is attractive to foreign investors and foreign businesses looking to access the Asian market via Australia.”
Sonego said the local food and beverage sector was also benefiting from increased domestic demand, which was also attracting interest from overseas investors.
“The Australian economy has done well comparatively for some time and that has increased demand for good quality food products,” Sonego said.
“Asian middle-class families continue to seek good quality foods for themselves and their families and there are big food safety concerns, which combined with the clean, green, image of Australia in the marketplace, has increased domestic demand for Australian produce.”
Sonego said although the food and beverage sector was a strong performer, future strength would be dependent on generating scale, efficiency and agility across the full value chain to meet the demands of future global customers.
“Maintaining a greater share of food processing onshore and better differentiating Australia’s food products from competitors are essential elements of the food and beverage sector’s future road map,” he said.
Pitcher Partners recently acted for US-owned OSI Group, which expanded its Australian operations through a merger with family-owned poultry and cheesemaking group Turi Foods, allowing it to vertically integrate the merged business.
