Economic slowdown fails to halt M&A activity

Introducing a discussion on M&A activity at the Healthy Foods European Summit in London yesterday, Seth Taylor of consultants, TSG Partners, said “it is a good time to consider merger and acquisition activity”. ​

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He said functional beverages such as tea, juice and value-added dairy presented the most lucrative opportunities.

Representatives of Irish dairy ingredient specialist, Glanbia Nutritionals, as well as Israeli infant nutrition specialist, Maabarot Products, noted the difficult financial climate could actually encourage M&A activity.

Wallet tightening​

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Maurice Keane, Glanbia’s general manager for Europe, the Middle East and Asia, said his company had “evolved a focused, nutritional strategy” ​that included a “fairly active acquisition strategy”.​

Recent Glanbia acquisitions include supplements maker Optimum Nutrition and Pizzey’s Milling (now renamed Pizzey’s Nutritionals).

“Yes the economic climate has changed,”​ Keane said. “But the trends are similar and our acquisition will continue although there may be less involvement of banks and more partial acquisitions.”​

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“This situation is no different to any market when it reaches a point of inflection. There is bound to be some deferral in investment but it really depends on the state of the financial world over the next four to five quarters. There may be some consolidation and some may need to exit.”​

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He remained optimistic backed with the observation that tighter budgets could encourage consumer and government interest in functional and healthy foods and ingredients such as the dairy proteins Glanbia is best known for.

“As wallets get tighter consumers avoid health costs by engaging in self-help. People want prevention not cure.”​

Maabarot chief executive officer, Yigal Galli, said despite the fact his company had relatively modest turnover of €100m, acquisitions had assisted the company in transforming into a diverse ingredients company.

Its activity included a partnership with Nestle as well as the acquisition of an organic food company and a children’s vitamins company.

Identity crisis​

Both Galli and Keane impressed the importance of retaining the identity of acquired companies.

“You must keep the spirit of the acquired company,”​ Galli said. “The acquisition should unlock the potential of the company and that won’t happen by crushing the company’s culture.”​

Keane agreed: “What you want to do is find a way to slash the bureaucracy and release the energy in the company.” ​

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Galli said there was divergence in investment policy among food ingredient companies because some viewed health and wellness as a trend and others as a sea change that represented a permanent change in attitudes toward nutrition.

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Chain of trust​

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“A chain of trust has been established that flows from health professionals to the public,” ​he said. “It began with food supplements with being prescribed by doctors and it has spread to functional foods which have huge potential. This underpins our optimism. There are plenty of opportunities if you come with the right attitude.”​

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But Galli said deals such as the one that had seen Coca-Cola pay $4bn for Glaceau Vitaminwater (40 times its turnover), were unlikely to be repeated.

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“M&A will be at more reasonable prices and value will have to be proven,”​ he commented.