Third Quarter Food Industry Divestitures Up Sharply From 2010, Says Food Institute

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Mergers and acquisitions within the food industry were recorded at 273 total deals by The Food Institute through the first nine months of 2011, a 39% increase from the prior year

Mergers and acquisitions within the food industry were recorded by The Food Institute at 273 total deals through the first nine months of 2011, a 39.2% increase over the previous year’s 196. Of the 273 transactions, 180 were completed and 93 remained unclosed or had fallen apart. In the third quarter of 2011, companies engaged in 77 mergers or acquisitions, or about 28.2% of the year-to-date total. At the same time, private equity deal volume fell 23% in the third quarter from the same period last year, according to Thomson Reuters data. The total number of third-quarter deals also declined by 9% from the second quarter.

M&A bankers stated that fears of a "double dip" recession, the European debt crisis and continued market volatility held up a lot of acquisition activity, and those problems are not anticipated to be resolved in the near future. Investment banks and investors showed particular interest in the retail industry, where the most significant acquisition was made by Beacon Holding Inc., an affiliate of Leonard Green & Partners, L.P., and funds advised by CVC Capital Partners, who purchased BJ’s Wholesale Club in an all-cash transaction valued at approximately $2.8 billion.

Other notable deals included the acquisition of Arby’s Restaurant Group for $430 million by a Roark Capital Group in the third quarter. The Atlanta-based sandwich chain was divested by the Wendy’s/Arby’s Group, which will retain an 18.5% ownership interest in the Arby’s business. On Oct. 3, Sara Lee Corp. also completed the sale of its North American Refrigerated Dough business to Ralcorp Frozen Bakery Products, Inc., a division of Ralcorp Holdings, Inc., for $545 million, a business that generated revenues in excess of $300 million in fiscal 2010. Finally, Diamond Foods, Inc. signed a definitive agreement to acquire the Pringles business from The Procter & Gamble Company (P&G) in the third quarter, a transaction valued at $2.35 billion. Under the terms of a split-merge agreement, P&G will establish a separate entity to hold the Pringles business, which will be distributed to electing P&G shareholders in a tax-efficient transaction with a simultaneous merger with Diamond.

For the remainder of 2011, and looking ahead to next year, any stability gained over the past year evaporated in the minds of private equity buyers and firms looking to spend cash to expand in markets that are becoming more and more competitive. Consumer attitudes, commodity prices and thinning profit margins are all contributing to larger trends within the mergers and acquisitions market, and the comprehensive research and analysis performed by The Food Institute provides insight into the micro- and macroeconomic factors that impact the food industry. The 83-year old organization reports on markets within the sphere of food processors as well as the infrastructure supporting the industry and capital from private equity. Specifically, the Food Institute offers a constantly updated merger database, consumer and producer food price tracking, market reports and multiple publications that include specific data as well as information relevant to any individual or firm with a business interest in one of the many segments of the food industry.

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Henry Mollman
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