Food and beverage M&A continues to recover from pandemic levels, anchored by larger transactions like General Mills’ (NYSE: GIS) $1.2 billion planned acquisition of Tyson Food’s pet food unit. The market awards a premium to historical valuations for public companies in the Better-for-You, Produce, Ingredients, Beverages, and Pet categories, according to a recent report from Duff & Phelps, a Kroll Business.
Pet subsector valuations climbed to 10.2x enterprise value (EV) to earnings before interest, depreciation, and amortization (EBITDA) from a five-year average of 9.7x, reflecting America’s pandemic reach for comfort animals. Deals like private label spice maker Olde Thompson’s $950 million sale to Olam Holdings B.V. contribute to the ingredients subsector’s premium: public companies trade at a median of 17.7x EV/EBITDA, up from 14.5x in 2020.
Meanwhile, the median Better-for-You valuation for public companies soared to 21.6x EV/EBITDA, up from a 18.9x historical average. The surge reflects a growing trend. Dealmakers interviewed by Mergers & Acquisitions said that pandemic-fueled snacking is still a demand driver for acquirers, but the definition of “comfort food” is growing to include products that taste good to both the palate and the conscience.
Pent up demand for takeover targets and outperformance in certain subsectors like better-for-you and frozen foods could be a recipe for high deal multiples. Assets with strong brand recognition, growth prospects, and cash flow to feature highly on the list of potential targets.
Second quarter deal flow increased across categories, led by the alcoholic beverage subsector with 16 percent of deals. But activity was dispersed between subsectors. The rising tide of dealflow looks set to continue lifting valuations.
