After a lull, food company mergers and acquisitions are back on track
All else being equal, selling a food company nets 8.5 percent less this year than in 2012 because of the phasing out of certain breaks in the capital gains tax. The less favorable treatment touched off a flurry of mergers & acquisitions in 2012's fourth quarter, followed by a dearth of deals in early 2013.
The slowdown is over, according to Randy Chapman, vice president of corporate development for Charlotte, N.C.-based Snyder's-Lance Inc. Speaking last week at the Food Industry Growth Conference in Chicago, Chapman says M&A activity has resumed the same pace as in 2012, before the end-of-year flurry of activity. He oversees a three-person M&A staff that may court an acquisition target for seven years, "and that's okay."
Rising interest rates and tighter financing rules are unlikely to derail the acquisition express, Chapman and his fellow panelists agreed. The key is buying operations that align with a company's strategy. "If the deal is right, everything else (including financing) falls in place," said Dave Bere, chairman and CEO of Nonni's Foods LLC, a Chicago-based biscotti baker. Owned by private equity firm Wind Point Partners, Nonni's benefited from the late-2012 scramble to sell, acquiring Villa Veneto Corp., maker of the La Dolce Vita brand, on Dec. 27.
As noted in Food Processing's annual capital spending survey, plant improvements compete with acquisitions for available funding, and an increase in the latter will likely mean a cutback in CapEx spending on manufacturing. The survey of 37 publicly traded food and beverage companies found that 2013 CapEx budgets were 5.4% higher than in 2012. However, actual spending often falls below budgeted amounts, as it did last year, when companies budgeted 4.1% more but actually spent 5.3% less than in 2011.
Reluctance to upgrade and expand production capabilities is sometimes a factor in companies' decision to sell. Panelist Howard Eirinberg, president of Kronos Foods Inc., a Glendale Heights, Ill., processor of Mediterranean foods, cited the case of his firm's acquisition of a fast-growing food company that ran out of capacity. Faced with a decision on whether to invest capital in capacity expansion or sell, Pita King Bakery chose to be acquired by Kronos, which had excess capacity to produce the flatbreads needed for Pita King's growth.