The tables are set for the food and beverage sector to see a busy M&A year, despite facing a plate full of challenges including supply chain disruptions, labor shortages and inflation. How are food companies navigating this difficult environment? We asked dealmakers from Harris Williams, MidOcean Partners, Cascadia Capital, Kroll and Peak Rock Capital to weigh in.

“Those food and beverage companies that are better at managing their supply chains have performed better than others in this environment, particularly those able to build more diversified supply chains,” says Harris Williams managing director Tim Alexander. “The ability to source from more than one geographic area has been essential to enabling companies to manage both price increases and shortages. That will continue to be a valuable skill for the foreseeable future.”

The pandemic has changed eating habits. Despite signs pointing to Covid-related conditions improving, people are still opting to dine out less and eat at home more. One area that is seeing demand is packaged food products.

For example, in January, MidOcean Partners acquired Casper’s Ice Cream, a maker of ice cream sandwiches mainly under the FatBoy brand. “Despite consumers beginning to return to restaurants and other out of home events in a post-Covid-19 environment (albeit not nearly to pre-pandemic levels in most regions), many brands were still able to successfully capitalize on increased trial over the past two years and are now well-positioned to further drive performance as retailers resume normal reset patterns at a time when the average consumer continues to eat at home more frequently than before the pandemic,” says MidOcean managing director Daniel Penn. MidOcean is a New York-based middle-market private equity firm that was formed in 2003 through the management buyout of Deutsche Bank’s billion private equity business.

Family Offices Feast on Deals

Family offices have increasingly become players in private equity. After increasing their activity in fund investment in recent years, many are now leveraging these relationships to co-invest or directly invest in companies themselves.

“Family offices are interesting,” says George Sent, a managing director at investment bank Cascadia Capital. “They are more tax sensitive. They just want a nice, compounded growth in the business, frankly with the notion that they are not going to sell it for a long time because if you sell it, then you have to pay taxes on it, and they rather see it compounded, tax-free, if it’s growing.”

In January, Pritzker Private Capital (PPC)-backed C.H. Guenther & Son acquired Baldinger and Sons bakeries. The target makes hamburger buns, rolls and bagels for quick-service restaurants. C.H. Guenther makes artisan breads, buns, and rolls that are sold to foodservice providers, restaurants and retailers. Pritzker acquired C.H. Guenther in 2018.

PPC Partners, led by Tony Pritzker, was launched in 2018 by Pritzker Group Private Capital and invests on behalf of certain Pritzker family.

No Longer a Strategic Fit

Strategic buyers are always worth keeping an eye on in this space. “2022 will likely see continued interest in acquisitions in this space among both strategics and PE funds, with many large strategics looking to shed noncore assets which could likely provide a wealth of opportunistic acquisitions for PE funds,” says Josh Benn, head of Americas M&A advisory and global head of consumer corporate finance at Kroll, corporate finance.

Last year, Paris-based private equity firm PAI Partners reached a deal to buy a majority stake in Tropicana, Naked and other juice brands from PepsiCo Inc. (Nasdaq: PEP) for $3.3 billion. PepsiCo said the deal will allow it to focus on growing healthier snacks and zero-calorie beverages.

Dining Out While Staying In

“We are seeking and see strong interest from our peers in food & beverage businesses with a proven ability to innovate and provide unique, authentic products to satisfy demand from the stay-at-home consumer who increasingly seeks new and differentiated at-home dining experiences,” says Robert Strauss a senior managing director at PE firm Peak Rock Capital LLC.

Bain Capital Private Equity acquired Dessert Holdings in June 2021 from Gryphon Investors. Dessert is a wholesale provider of chef-inspired gourmet desserts. In January, Dessert bought another dessert maker, Steven Charles. Dessert is an umbrella organization of various dessert brands– primed for Bain to roll-up other companies like Steven Charles in the future.

No matter where people decide to eat, as long as the demand for food is there, so will PE interest.