M&A food deals feed the hunger pangs of private equity buyers

Recently there have been a number of articles in the press regarding high profile deals in the food sector. Upon digging a little deeper using Zephyr, I found evidence that the food sector has been gathering upward momentum in terms of deal activity, whether involving strategic buyers or private equity buyers, and this has been the case since late 2009.

So far this year alone there has been some $80.5 billion of announced deals involving food company targets. This compares with a total figure of $123 billion in the whole of 2009. Private equity buyers or sellers have accounted for $6.8bn worth of deals within that total figure in the first seven months of 2010. Given that last year private equity accounted for just $7.0bn worth of deals in the sector all year this is an impressive increase.

Looking at some of the auctions that have recently been speculated, this year could easily surpass the deal values seen in 2009 and looks on course to head back towards 2007 levels.

Some of the higher profile private equity auction-ready deals are reported to include Little John’s disposal of Van Houtte Coffee, Blackstone and PAI Partners’ disposal of United Biscuits and also PAI Partners’ potential disposal of Yoplait. Meanwhile, corporate sellers in this sector are rumoured to be Sara Lee Corporation, which is said to be considering disposing of its bread division, and also San Miguel Corporation, which has been linked with a plan to divest a significant minority stake in its San Miguel Pure Foods subsidiary.

The food industry as a whole has shown resilience from the economic downturn. When aligned with some impressive returns on investment having been made by financial buyers, and in addition to many private equity firms having funds that need to be spent before they are re-claimed, it will be no surprise should the corporate sellers in the food industry end up selling to private equity groups at what are likely to be pre-2008 prices.

There is strong evidence that some of the deals in the food sector have the potential to be of supersize-me proportions.

Filed under: Investors, food