M&A activity to feed growth in 2022

As customer demands around healthier foods and environmental concerns continue to increase, matched with supply chain pressure, food and beverage companies are seeking balance according to the Mazars 2022 Food & Beverage Industry Outlook. Industry leaders told our firm that the main trends, shaping the future of food and beverage include:

• Continued demand for health and wellness products: 80% of respondents stated that health and wellness is somewhat or very important when introducing new products, 48% anticipate that plant-based options will have a positive impact on sales, and 35% said that functional foods and “free from foods” would perform similarly.
• 68% of respondents expect an increased emphasis on expanding into new markets.
• Increased investment in supply chain improvement: 54% of survey respondents said their top concern was shipping costs, container costs, and/or other unexpected fees at ports. To combat this unpredictability and better manage risks and cost, 41% are making strategic investments in supply chain diversification.
• Introduction of new products to the marketplace: 54% of food and beverage companies surveyed said that new products are an important factor in sales growth, and 60% reported that new product introductions are planned or already underway.

M&A activity: predictions for the future

After a record setting year of M&A activity in 2021, it is expected that 2022 will be equally strong. While the first quarter has been a bit slower out of the gate due to companies continuing to address challenges from 2021, including persistent inflation, uncertainty around global supply chains, and the increasing challenges and concerns around labor, we expect that M&A activity will steadily pick up throughout the year.

Deal activity is expected to exceed that of 2021 due to a number of liquidity factors.

In addition to private equity firms’ enormous appetite for acquisition of new portfolio companies, many corporations also need to grow top line.

This growth will expand the range of new products, services, and geographies and lead to the adoption of new technologies, automation and digitalization.

Challenges in the M&A market will come from continued labor shortages, an inflationary environment and ongoing supply chain issues.

For example, like most companies Gourmet Boutique, is experiencing rising costs, particularly around labor, raw materials and logistics. Their number one raw material commodity (chicken) increased almost 270% in the past year compared to the prior three-year average.

In response, the company implemented two price increases during 2021 and a much larger one in January of 2022 to offset the actual cost increases and anticipated inflation for 2022.

By negotiating a favorable contract with their chicken supplier, they were able to keep pricing competitive even after the increases and maintained high service levels in the face of supply chain unreliability.

This type of successful response to ongoing challenges is occurring throughout the industry. Many investment professionals also believe that the second half of 2022 will be better, seeing supply chain challenges ease, with investment in automation leading to less reliance on labor markets. Most dealmakers think that the continued need for growth and innovation along with strong consumer demand for products and services will drive significant M&A activity in 2022.

Learn more

To learn more and read the full report visit mazars.us.