Food sector M&A ripe for the picking
In the biggest deal to date in the natural and organic foods category, and in its largest takeover since 2007, French food company Danone is set to double the size of its US business this month with the acquisition of US organic food producer WhiteWave Foods. This included significant run-rate EBIT synergies of $300 million by 2020, an improvement of Danone’s full year like-for-like sales growth by an extra 0.5 percent to 1 percent, an increase of EBIT margin from 2018 and solid EPS improvement from 2017 and above 10 percent based on run-rate synergies.
WhiteWave’s Horizon milk is the biggest branded milk in the total US milk market with 5.4 percent share and, more interestingly for the Danone acquisition, it owns nearly 25 percent of the organic milk market – an area tipped for huge growth in 2017.
This move marks the latest in a seismic wave of consolidation in the natural foods sector, which has seen food industry giants struggling to maintain market share in the face of consumers turning their backs on packaged and processed foods. With plant-based dairy alternatives growing at an 11 percent compound annual growth rate in the US and organic dairy growing at 8 percent, the food industry is implementing a complete overhaul of its approach. Big food brands are being set aside in favour of naturally sourced products with a more homespun appeal – a shift which is seeing big brands snap up smaller and emerging companies that represent their antithesis in this niche, in a bid to grow their portfolio in this hotly contested market.
This is evidenced by market moves across Europe. The agri-food giant Archer Daniels Midland (ADM) announced its acquisition of French wheat processor Chamtor on 29 March 2017 to grow its sweetener and starch capabilities with a locally sourced product. This move will see ADM’s global corn processing business grow, since 70 per cent of the European starch – a key ingredient in most processed foods – and derivatives market now lies in Western Europe.
Global sugar giant Tate & Lyle is also extending its portfolio, concluding a three-year deal that takes effect from 3 April 2017 with stevia producer Sweet Green Fields to grow, extract and manufacture the sweetener at its plant in China. It has also just signed a deal with US protein producer Codexis to research and develop novel foods at its California plant, extending its global capabilities with local partnerships to strengthen its market position.
In a deal announced on 4 April 2017, UK-based Westbridge Food Group, which produces meat based products including KFC chicken, has been acquired by CPF investment, a wholly owned subsidiary of Thai Charoen Pokphand Foods Public Company in a deal worth approximately £60 million. The last available annual accounts for Westbridge (year-end December 2015) revealed the group turned over £341.9m, a valuable proposition for the Thai food conglomerate seeking to extend its network in to the UK and EU.
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