Feb 16, 2022

Food & Agriculture Market Update: Strong Market Persists for Sector as M&A Surges in 2021

M&A Volume in the Food & Agriculture Sector Highest in Over Four Years

Capstone Partners released its February 2022 Food & Agriculture Sector Update, reporting elevated consumer demand, supply chain disruptions, and widespread labor shortages have fueled historic levels of food inflation, challenging the pricing power and profitability of many sector participants.

Merger and acquisition (M&A) volume in the Food & Agriculture sector surged 17% year-over-year (YOY) in 2021 with 383 deals announced or completed, which marked the highest number of transactions in over four years. The prospect of capital gains tax increases drove a flurry of transaction activity at the beginning of 2021 with many business owners expediting their exit timeline to capture larger take home earnings. While the capital gains tax increase did not manifest in 2021, deal activity continued to move forward at a fervent pace as sellers capitalized on favorable valuations and an active pool of buyers. The low cost of capital and healthy strategic company balance sheets also allowed for aggressive bids in M&A sale processes.

Private strategic buyers continued to lead transaction activity in 2021, accounting for 45% of total M&A volume. Much of the focus among strategic players, and motivations for M&A, has been to achieve enhanced scale and better control over their supply chain. The sector has also seen significant channel crossover, especially among foodservice players, which increasingly sought acquisitions in the Grocery and Retail end markets following drastic declines in restaurant sales during the height of the pandemic. Private equity firms have also actively targeted the sector, comprising 36% of 2021 transaction volume – its highest level in over four years. Notably, the overall Food & Beverage sector has been the most sought-after space among private equity firms in Capstone’s proprietary database. In addition to the Ingredients & Flavors segment, financial buyers have demonstrated a strong appetite for contract manufacturers serving customers in the Food industry, often adding on to portfolio holdings through acquisitions.

Also included in this report:

  • How public companies have combated rising food inflation.
  • Which subsectors have attracted strong M&A demand through 2021.
  • What are the key trends and drivers of deal activity among strategic and financial buyers.

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