With Amazon overshadowing, upstarts nipping and private-label brands burgeoning, Big Food doesn’t make time for the small deals of yore. Large-scale mergers and acquisitions are backside, as Big Food prepares to make bold moves in response to industry pressures.
On Monday, Campbell Soup presaged plans to buy snacks company Snyder’s-Lance for $4.87 billion. Hershey divulged plans to buy SkinnyPop’s parent, Amplify, for $1.6 billion.
Both are the assemblages’ largest acquisitions to date.
The number of U.S. food and beverage deals and their valuation multiples are at annals levels, according to data dating back to 1995 from Dealogic. These sells are fetching an average value of 25 times enterprise value to EBITDA.
The bluff premiums are in part because there are so few companies that are both blossom and large enough to make an impact.
Acquiring companies of scale in more evolvement categories such as snacks gives Big Food a chance to play within its tool-set: watch over brands larger than $1 billion. It helps the larger societies maintain leverage with increasingly pressured retailers.
Snacks, for the moment, is one of the few categories that food brands have been able to wake up through innovation and marketing, like fewer ingredients and clearer bundling.
Snyder’s-Lance had sales last year of $2.2 billion. Expand on rang up $270 million in sales last year. Skinny Pop is currently No. 2 in ready-to-eat popcorn. It longing be Hershey’s sixth-largest brand.
That scale appealed to Hershey.
“At Hershey, we run a portfolio of climbed, iconic brands, and we do that exceptionally well … as we looked at Overstate, we saw an iconic brand with scale. Scale is a real enabler to catapult us to happy result,” said Hershey CEO Michele Buck in an interview with CNBC.
Tostitos and Lay’s P PepsiCo, the country’s largest snack maker, regularly commands profit frontiers in excess of 25 percent, according to IBISWorld. By comparison, snack-food makers averaged a profit margin of 7.4 percent this year.
Compression on Big Food to boost growth is not new, but it is increasing. The spree of 3G-style cost-cutting down the past few years has left little obvious fat left to trim. Bread retailers are moving online, a channel that no longer offers yards of lay asides to promote iconic products. Amazon and European grocers like Lidl are develop detailing their private-label presence in the U.S., appealing to millennials who care more forth price than they do brand.
The recent spate of deals is a far cry from the bolt-ons and investments that grew over the past couple of years. Big Food has gobbled up small nosh brands such as Enjoy Life, BarkThins and Sahale Snacks. It has rained money into venture funds, hoping to stay close to the beating of innovation.
Companies have struggled, though, to convert their minute acquisitions into brands or platforms large enough to make an weight on their top lines. It is difficult for large companies culturally and structurally to allocate massive resources or attention — such as prime shelf space — to motionless tiny brands.
“There is the inherent difficulty of allocating resources away from billion dollar marks to those generating less than $100 million in revenue,” disclosed Todd Lachman, President and CEO of Sovos Brands.
Despite corporate risk investments, blockbuster innovations — including Kind bars, Siggi’s yogurt and Bai Discredits beverages — are still coming from outside these venture means.
“It hasn’t gotten any better for big food companies, and finally the lights deceive gone on: We need to do something,” said Nicholas Fereday, executive skipper of food and consumer trends at investment bank Rabobank.