Food industry M&A activity hits low

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Related tags: Mergers and acquisitions

Merger and acquisition activity in the US food industry plunged in
2002 - according to the US Food Institute - and both the
agricultural and dairy sectors have to proved to be no exception

Merger and acquisition activity in the global food industry plunged in 2002, hitting the third lowest mark in the past 20 years, according to the US Food Institute.

The group tracked 416 transactions across a total of 24 different food categories and found that activity was down 19 per cent - or 100 fewer - than in 2001.

Activity in the US dairy sector dropped to a 20 year low in 2002, to just 39 acquisitions, falling from the 1998 high of 140 transactions. In the agricultural co-operatives sector activity remained relatively low at just 4 transactions, down from a 1998 high of 12."Looking at the past two decades, only the recession era of the early nineties saw such few transactions,"​ observed Catherine Pfister, an industry analyst at the Elmwood Park, New Jersey-based Food Institute. In 1990 and 1991, 415 and 365 deals were closed, respectively. The total number of M&A activity can be viewed at this link​.

The only area of significant activity was investment firms and banks, who gobbled up 42 food-related concerns, twice as many as in 2001 and the highest level of deals recorded since the Food Institute began monitoring that category in 1998.

"With the economy still weak, this sector had one advantage that other categories may not have had - access to capital to finance the deals,"​ noted Pfister.

Among the most notable in this sector and arguably the most closely watched deal of the year (rivalling the defunct attempt to sell Hershey Foods) was the bid from a consortium led by private equity investor Texas Pacific Group to purchase Burger King from Diageo. With a $2.26 billion (€2.1bn) cash offer, the group emerged as the victor in a heated bidding war. However, in the wake of what has been deemed a debilitating price war among US burger chains, a $1.5 billion deal was finally agreed to between the UK liquor giant and the consortium.

Food retailers made just 26 purchases of other companies, down 42 per cent from 2001 and a 51 per cent decline from 2000. The year brought no closure to the Kings Super Markets sale, however. In December, a $160 million deal for the disposal of Marks & Spencer's Parsippany, New Jersey-based chain collapsed after a period of exclusive talks with D'Agostino Supermarkets expired without the sale being finalised. Some three years after putting the chain on the block, UK-based Marks & Spencer is still seeking a buyer.

The late 1990s were boom years for merger and acquisition activity amongst restaurant and foodservice operators. Between 1996 and 1999, the category logged more than 100 transactions annually, peaking at 140 in 1998. However, activity has been cooling in the sector since the millennium mark. This year, the category made a paltry 48 transactions - the quietest year since 1991 when 33 mergers and acquisitions were completed.

Similarly, food processors have been scaling back on consolidation in the past few years after going on a buying spree throughout much of the late 1990s. With 101 deals under its belt in 2002, the food processor category accounted for 24 per cent of the all food industry mergers and acquisitions made last year. It was the lowest level for the category since 1995 and 1996 when 96 deals occurred each year.

Founded in 1928, The Food Institute is a non-profit information and reporting association. Membership, more than 2,200 companies in 50 states and in over 40 foreign countries, spans the entire food distribution system, from seed companies to grocery chains and all bases between.

Related topics: Manufacturers