Food and beverage dealmaking, in large part resilient through economic downturns, is suddenly experiencing a slowdown.

“September continued to see a more challenged lending environment,” says Lorin DeMordaunt, consumer retail group leader at Deloitte Corporate Finance. “The amount of leverage that lenders are willing to put on deals has decreased generally and the cost of capital is up. The amount of new deals coming to market is at a slower pace than earlier this year.”

Food and beverage advisory tends to weather an economic downturn well, says Helana Robbins Huddleston, partner at CohnReznick Advisory. “People have to eat. They had to eat during Covid. Food’s a necessity.”

DeMordaunt points out that food and beverage acquirers invest in parts of the supply chain, like harvesting, processing and distribution of food, rather than brands to reduce risk. “The majority of deals are away from the shelf,” he says. The investor is “not betting on consumer picking a brand but a category.”

Some of the popular trends in food and beverage dealmaking are plant-based foods and upcycling, taking food waste and converting it into another food, adds Huddleston.

Double-Digit Valuations

Even though deal flow has slowed, exit multiples continue in the double digits of Ebitda for strong companies, DeMordaunt says. “Valuations are everywhere from 10x-Ebitda if a company has great margins and good growth. If they have a proprietary ingredient critical to a flavor profile, they get a fantastic multiple.” If a product’s a commodity, the multiple is lower.

Negotiations between buyers and sellers are taking longer this year than last, a year in which M&A was on hyperdrive over speculation that capital gains taxes would increase, Huddleston says.

Due diligence is taking longer, DeMordaunt adds.

In the broader consumer market, there’s a wider valuation gap between seller and buyer, Huddleston says. “Last year, negotiations lasted three months. Now it’s six to 12 months.”

Sarah Cohen