Oct 24, 2023

Food & Agriculture Market Update

Food & agriculture market
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M&A Volume Remains Robust in Food & Agriculture Market with Persistent Interest from Strategics and Financial Buyers

An easing labor market, input cost disinflation, and persistent end-market demand has contributed to a healthy outlook in the Food & Agriculture sector. The continued resilience of the labor market and normalization of supply chains have been key tailwinds for sector players, particularly among food processors. A consensus shattering jobs report revealed the U.S. added 336,000 jobs in September, with employment in food services and drinking places, food manufacturing, and food and beverage retailers all increasing year-over-year (YOY), according to the Bureau of Labor Statistics (BLS).1 While inflation can be beneficial to top line growth and earnings for players in the Distribution segment, input-reliant businesses have benefited from a moderation in the pricing environment. At the consumer level, food inflation fell to 3.7% in September, marking its lowest level since August 2021, according to the BLS.2 Pricing moderation has been even more pronounced at the producer level, which has seen substantial deflation in select categories, including a 41.4% YOY decline in the price of eggs and a 37.7% decline in processed turkey prices, according to the BLS.3 Food & Agriculture sector participants will continue to monitor pricing dynamics, particularly as consumers have shown a greater propensity for value-oriented purchases in recent months.

Increased profitability among sector players, easing raw materials costs, and pent-up demand have taken many sellers off the sidelines—fueling robust M&A activity. Notably, deflation has shifted tailwinds away from food distributors and towards food processors. While the labor situation has improved, businesses have still faced difficulty obtaining production line workers.

Brian BoyleManaging Director, Capstone Partners

Consumers Increasingly Emphasize Value in Purchases

Consumers have increasingly adjusted their purchasing behavior to optimize their grocery spend in recent months—often forgoing ready-to-eat products in place of food products that can be stretched over multiple meals. Leading brands have noted this consumer behavior which has impacted certain business categories. Notably, Campbell Soup (NYSE:CPB) has seen consumers purchasing more value-driven meals, which has positively impacted categories including pasta sauce and condensed cooking soups, while pressuring the sales of ready-to-eat soup, according to its most recent earnings release.4 Conagra Brands (NYSE:CAG) has noted a similar sentiment, communicating that spending in convenience-oriented items has fallen, with shoppers opting for more hands-on food preparation to extend their budgets, according to their earnings release.5 Persistent moderation of pricing is likely to prove pivotal in consumer spending patterns in the coming quarters.

Despite a volatile economic backdrop, valuations among select Food & Agriculture market segments have remained robust. Average EBITDA multiples in Capstone’s Protein Processors index have expanded meaningfully YOY, rising to 10.4x EV/EBITDA, compared to 7.4x EV/EBITDA in the prior year. Healthy valuations among public companies often bode well for pricing among prospective middle market sellers—particularly as large strategics have shown a willingness to pay premiums for complementary brands to enhance sales growth.

Food & Agriculture Market Emerges as a Standout in Consumer M&A

Merger and acquisition (M&A) activity has registered healthy gains through year-to-date (YTD) 2023 compared to the prior year with 219 transactions announced or completed through Q3. This marks a 7.9% YOY increase, solidifying the Food & Agriculture space as a standout within the broader Consumer industry, which has largely struggled from a transaction volume standpoint. Among sectors tracked by Capstone, the YOY transaction volume gains in the Food & Agriculture market have trailed only the Food Distribution (+10.0%) space through Q3 and far outperformed broader M&A markets which have fallen 26.3% YOY. Deal activity in the space has persisted at healthy levels despite a more rigid transaction regulatory environment and antitrust scrutiny. Notably, recent proposed changes to Hart-Scott-Rodino (HSR) filing procedures would require parties of reportable transactions to submit a greater level of information and documentation during the premerger review process. Dealmakers will continue to carefully monitor the regulatory environment, which is not expected to loosen in the near-term.

Transaction activity has been spread across various subsegments within the Food & Agriculture space, highlighting the health and diversity of sector M&A activity. Segments including Bakery, Seafood, Confectionary, Produce, Distribution, and Meats have seen solid acquisition appetite in the current market. International buyers have also demonstrated robust interest in quality domestic businesses. Notably, Peru-based Océano Seafood acquired Sea Fresh U.S.A. in September for an undisclosed sum. Sea Fresh generates approximately $50 million in annual sales and bolsters Océano's supplier network and product offerings, according to a press release.6

Strategics Actively Pursue Large-Scale Acquisitions, Paying Premium Multiples

Strategic buyers have continued to drive consolidation activity, comprising 67.1% of YTD transactions. Gaining economies of scale, complementary product offerings, and enhancing market share have been key motivations for acquisitions in the current market. In addition, select branded food players have pursued large acquisitions to generate synergies and capture additional revenue opportunities, often paying premium multiples. Target companies with demonstrated healthy revenue growth with exposure to favorable consumer trends have garnered significant strategic buyer interest. Select notable transactions are outlined below.

  • J.M. Smucker Acquires Hostess Brands (September, $5.6 Billion, 4.1x Revenue, 18.5x EBITDA) - J.M. Smucker (NYSE:SJM) has entered a definitive agreement to acquire Hostess Brands (Nasdaq:TWNK) for an enterprise value of $5.6 billion, equivalent to 4.1x EV/Revenue and 18.5x EV/EBITDA. The acquisition significantly expands J.M. Smucker's portfolio of snacking brands and provides greater exposure to the Convenience channel, with 40% of Hostess sales generated from convenience stores purchases, according to J.M. Smucker's acquisition call.7 In addition, Hostess is expected to provide annual run rate cost synergies of approximately $100 million within the first two years of ownership and be accretive to adjusted earnings per share in the first fiscal year, according to a press release.8
The strong valuation paid for Hostess demonstrates the value large strategics have placed on growing businesses in attractive categories. While healthy eating has certainly been a key consumer trend, indulgent snacking has continued to capture wallet share and J.M. Smucker seems to hold a favorable long-term outlook for the space.


  • Campbell Soup Acquires Sovos Brands (August, $2.8 Billion, 3.0x Revenue, 15.7x EBITDA) - Campbell Soup has agreed to acquire Sovos Brands (Nasdaq:SOVO) for an enterprise value of $2.8 billion, representing 3.0x EV/Revenue and 15.7x EV/EBITDA. Sovos offers premium products including pasta sauces, dry pasta, soups, frozen entrées, frozen pizza, and yogurts under the Rao’s, Michael Angelo’s, and noosa brand names. Sovos has achieved a compounded annual organic net sales growth rate of 28% from fiscal 2019 to 2022, according to a press release.9
The acquisition of Sovos significantly strengthens Campbell's Meals & Beverages division, particularly with the addition of the Rao’s brand which grew organic net sales by 34.9% YOY in 2022. The transaction also accomplishes a strategic goal of Campbell to build a $1 billion sauces business, gaining entry into the growing ultra-distinctive Italian Sauce category.

Private Equity Buyers Remain Active in M&A Market

Financial buyers have been increasingly selective amid elevated transaction financing costs, choosing to pursue businesses with proven cash flows, robust revenue visibility, and healthy gross margins. However, sponsors have continued to deploy capital to the Food & Agriculture space, with financial acquirers accounting for 32.9% of YTD transactions. Add-on acquisitions have been the preferred method of sector exposure, comprising 23.7% of total transactions. Notably, Capstone Partners advised Mama Rosie's, a second-generation family-owned frozen pasta manufacturer, on its acquisition by Seviroli Foods, a portfolio company of Mill Point Capital. Sponsors are expected to continue to intensely scrutinize cash flows of prospective targets while interest rates remain elevated.

Moving through year end and into 2024, transaction volume is expected to remain robust with strategics and private equity buyers anticipated to be active in the market. With sector players, particularly food processors, bolstering profits and eyeing liquidity events, a substantial inventory of transactions is likely to hit the market towards the first half of 2024.

To provide an update on your business or learn about Capstone's wide range of advisory services and Food & Agriculture market knowledge, please contact us.

Connor McLeod, Vice President, was the lead Market Intelligence contributor to this article.


  1. U.S. Bureau of Labor Statistics, "Employment Situation," https://www.bls.gov/news.release/empsit.toc.htm, accessed October 10, 2023.
  2. U.S. Bureau of Labor Statistics, "Consumer Price Index," https://www.bls.gov/cpi, accessed October 10, 2023.
  3. U.S. Bureau of Labor Statistics, "Producer Price Indexes," https://www.bls.gov/ppi/, accessed October 10, 2023.
  4. Campbell's, "Q4 Fiscal 2023 Earnings Presentation," https://investor.campbellsoupcompany.com/overview/default.aspx, accessed October 10, 2023.
  5. Conagra Brands, "Conagra Brands Reports First Quarter Results," https://www.conagrabrands.com/investor-relations, accessed October 10, 2023.
  6. Just Food, " Peru’s Océano Seafood snaps up US peer Sea Fresh," https://www.just-food.com/news/perus-oceano-seafood-snaps-up-us-peer-sea-fresh/, accessed October 11, 2023.
  7. SEC, “J M Smucker Co to Acquires Hostess Brands,” https://www.sec.gov/Archives/edgar/data/91419/000119312523232545/d550359d425.htm, accessed October 10, 2023.
  8. The J.M. Smucker Co., "The J. M. Smucker Co. To Acquire Hostess Brands To Accelerate Focus On Convenient Consumer Occasions," https://www.jmsmucker.com/news-stories/news/23210?news=23210, accessed October 10, 2023.
  9. Campbell's " Campbell to Acquire Sovos Brands, Leader in High-Growth Premium Italian Sauces," https://www.campbellsoupcompany.com/newsroom/press-releases/campbell-to-acquire-sovos-brands-leader-in-high-growth-premium-italian-sauces/, accessed October 10, 2023.

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