Consumer Products M&A To Rise In 2011 – Deloitte
2011-05-27 10:27:19
Flush corporate balance sheets and stable credit markets are driving a surge in consumer products merger and acquisition activity, according to Deloitte Touche Tohmatsu Ltd, and private equity is poised to benefit from the action.
The number of private equity deals in the consumer products space increased 70% in 2010 from a year earlier, Deloitte said in a recent report, and firms with “dry powder” are deploying capital to benefit from “well-established trends in consumer preferences, consumption patterns and tastes.”
Private equity firms have spent $5.4 billion in the first four months of 2010 in 120 consumer-related deals, accounting for 7% of all PE transactions, according to data provider Preqin.
Deloitte expects to see more M&A activity for businesses involved in dairy, healthy snacks, energy drinks and chocolates, as consumer products companies try to build growth platforms in these areas. Firms such as Brynwood Partners and Centerview Partners LLC provide a “practical outlet” for companies looking to carve-out non-core brands, according to the report.
Products that “appeal to growing ethnic groups in the U.S. market” were also identified as a potential targets.
Earlier this month, condiment maker Mizkan Americas Inc. acquired Border Foods Inc., which processes peppers and makes enchilada sauces, from Ares Capital Corp. And last year, Ancor Capital Partners led a group of investors to acquire Fresh Food Concepts Inc.–which makes salsa and salads under the Rojo’s, San Francisco, and De La Casa brands–from Swander Pace Capital. Palladium Equity Partners LLC, which focuses its investments on companies that cater to the U.S. Hispanic market, sold Mexican cheese and cream products maker Castro Cheese Co. to the milk marketing cooperative Dairy Farmers of America Inc. in late 2010.
With credit availability approaching 2005 levels, and the ten largest public food and beverage companies holding $30.1 billion in cash at the end of 2010, Deloitte expects to see more activity in 2011 and beyond.
This increased interest in consumer products and a buoyant stock market are pushing up valuations, but private equity firms remain active in the sector and are even raising new funds. Freeman Spogli & Co., whose portfolio includes El Pollo Loco Inc. and Savers Inc., held a final close on its $735 million consumer-focused fund, FS Equity Partners VI LP, in April.