Glass bottles being filled with orange juice at a factory.

How Supply Chains and Private-Label Products Influence Food Industry Deals


As M&A activity accelerates, valuations are increasing for supply chains and private-label products.

The COVID-19 pandemic changed American food-buying behavior in a number of dramatic ways, from increased online ordering and home cooking to continued momentum in the search for exotic and experimental tastes. These changes have accelerated a surge in mergers and acquisitions activity in the food and beverage sector, especially for the supply chain firms that provide key components to ensure that high demand products stay on the shelf.

According to data firm Duff and Phelps, food and beverage M&A activity hit record levels in the 12-month period ending in September 2021, the last period for which there are statistics, with 381 deals closing in the U.S., an increase of 18% compared with the same period in the previous year. In addition, the average transaction multiple was nearly 12 times earnings before interest, taxes, depreciation, and amortization (EBITDA), which the industry’s Food Institute said was "significantly higher than historical norms."

"We see a lot of very large funds making deals at the lower levels—the kind of deal that they might not have looked at beforehand, given the size, that they’re now spending more time with," said Jay Desai of private equity firm Kainos Capital, which specializes in food industry M&A, referring to the impact of new consumer preferences at a Food Institute webinar in September 2021.

A trend expected to experience renewed vigor this year is a move toward private-label products which tend to be less expensive than brand names because there are no marketing expenses, a significant factor after U.S. inflation reached 7.9% in February 2022. The market for private label food products is growing at an estimated 6% a year, according to market researcher Data Bridge, and is expected to reach $215 billion by 2028.

"Private-label market share in the U.S. is only about half the level it is in Europe," said Rory Dineen, Managing Director, leading Fifth Third’s Food, Beverage, and Wellness Investment Banking Efforts. "We expect private-label growth to accelerate in an inflationary environment and lead to continued convergence in market share with what is observed in Europe."

While in the early stages of COVID-19, consumers flocked to trusted consumer packaged goods brands that were widely available, supply chain disruptions as the pandemic persisted resulted in stock outs of certain everyday products. As inflationary pressures started to take hold in 2021, it is likely that early COVID-19 was a momentary interruption of a longer-term accretion of private-label market share. According to consultants at McKinsey, some shoppers began to stock up on private-label goods during the pandemic because brand name products had disappeared from the shelves and have continued to buy them. "These two advantages—high availability and low price—have made private-label products considerably more appealing to consumers during the COVID-19 pandemic," McKinsey said.

A recent deal illustrates this trend. Singapore-based Olam Food Ingredients bought U.S. private-label spice producer Olde Thompson for $950 million, a multiple 11.5 times the enterprise value/EBITDA, significantly above the average deal multiple in the food and beverage supply chain in recent years. The company said it combined Olam’s strengths in sustainable supply chains with Olde Thompson’s capabilities to provide retail spice solutions to many U.S. retailers. Olam also acquired the U.S. chili pepper business of Mizkan America for $108 million, capitalizing on the trend for spicier food.

Among the changes in consumer tastes that are driving the M&A surge is a willingness to try new and exotic flavors after months of lockdowns and being stuck at home. "There is palate exploration, recipe exploration going on," said Krishnakumar Davey, president of strategic analytics at IRI, a consumer-focused data firm. "We have documented all kinds of spicy sauces that have grown substantially—hundreds of percentage points in smaller growth categories."

Similarly, Cincinnati-based supermarket giant Kroger identified 10 food trends it expects to take hold in 2022, including four flavors gaining popularity with consumers: umami (the savory flavor of beef broth), everything seasoning, tequila, and nostalgic flavors that provide emotional comfort. Flavorchem, a flavor manufacturer, said in its 2022 Flavor and Trend Forecast that "brands continue to bring the heat, as an emergence of fiery flavor launches will hit store shelves and menus in 2021."

What this means for midsized companies that are part of food and beverage supply chains is increased demand for their products and higher valuations in the current M&A environment.

"Institutional capital such as private equity used to frown on paying high multiples for non-branded food and beverage businesses, but it’s quite the contrary today," said Dineen. "In many cases, private equity firms have found there is plenty of return in the supply chain capitalizing on domain expertise, capital efficiency, and developing sticky customer relationships." For example, one significant deal by a major consumer firm to support the supply chain was McCormick’s $710 million acquisition of Illinois-based flavoring producer FONA International in December, 2020.

Strategic buyers continue to demonstrate a significant appetite for M&A opportunities. Exemplifying this dynamic was food giant Mondelez International’s acquisition of protein snack bar maker Grenade for $277 million, a 40 times multiple on the company’s 2019 profits of $7 million. The company’s products tapped into the growing demand for healthier snacks.

Among the strategic buyers looking to solidify its supply chain was Hershey, in its $1.2 billion acquisition of Dot’s Homestyle Pretzels, the fastest growing U.S. pretzel brand. As part of this transaction, Hershey also acquired the company that was manufacturing on behalf of Dot’s, another nod to the importance of shoring up supply chain in the current environment.

Many of the M&A deals in the food and beverage sector had values less than $500 million, indicating that firms are approaching dealmaking by buying smaller companies and investing to achieve scale. According to a study by consultants at PwC, "the numbers suggest that many companies are navigating the competition for assets in different ways, including through smaller and midsized transactions that could still deliver solid proceeds and ultimately be scaled for larger deals."

Given these dynamics, the outlook is robust for M&A in food and the broader consumer products supply chain. On the branded front, the trend of consumer packaged goods companies buying innovation by purchasing smaller companies with market traction in emerging trend areas like health-oriented foods and exotic tastes is expected to continue.

Food and beverage supply chain operators considering liquidity options or capital raising could find the market ripe with interested suitors, including both private equity and strategic players. As inflation persists, food and beverage operators will be perceived as better insulated and able to pass along cost increases than more discretionary businesses.

Interested in finding out more about M&A in this sector? Learn more about Fifth Third’s investment banking expertise or contact

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