Food & Agriculture Market Update

Despite Historic Inflation, Buyer Interest Remains Strong in the Food & Agriculture Market

Capstone Partners released its June 2022 Food & Agriculture Market Update, reporting that supply chain constraints, elevated fuel prices, and rising feed costs have contributed to historic food inflation in the first half of 2022. Food prices increased a substantial 10.1% (Bureau of Labor Statistics) in May year-over-year (YOY), compounded by Russia’s war on Ukraine which has caused disruptions in food production and exports across the globe. The convergence of these inflationary factors has occurred amid a backdrop of robust consumer demand, forcing sector players to fortify their supply chains and production processes. In addition, elevated inflation has disproportionally affected various food categories which, in turn, impacts the margins of the sector players relying on these products.

Merger and acquisition (M&A) volume across all industries in the middle market has remained steady following a historic 2021, with deal activity rising a modest 0.1% YOY in Q1 2022, according to Capstone Partners. However, the velocity of dealmaking has certainly cooled from the second half of 2021 and settled into a more normalized cadence. This dynamic has extended to the Food & Agriculture sector, with M&A volume trailing the prior year by 28% at 128 transactions announced or completed year-to-date (YTD). Despite this decline from a historic 2021, the M&A market has remained solid for privately owned businesses that have showcased revenue growth and defensibility over the past 12 months. Inflation and higher input costs have pressured margins, encouraging sector players to pursue M&A to diversify offerings, bolster supply chain strength, and expand manufacturing capacity.

Private strategic buyers have continued to dominate transaction activity through YTD accounting for 46.9% of total transactions. Key motivations for M&A among strategics have included vertical integration and enhancement of core capabilities.