Mergers & Acquisitions

M&A Activity Rebounding

Food Institute report looks at mergers and acquisitions in food-related industries, including c-stores

ELMWOOD PARK, N.J. -- In 2006, 348 mergers and acquisitions (M&As) were completed in the food industry, and an additional 102 were announced, but not yet completed by the end of the year, according to The Food Institute's Food Business Mergers & Acquisitions 2006.

Purchases completed by convenience stores reached 32, with another 10 pending closure, up from just 10 transactions completed in 2005, the report said.

Activity across all categories was up 7.7% from 2005, but still remains 13.6% below the total five years ago. [image-nocss] Food processors accounted for nearly one-third of the total number of M&As closed in 2006, while investment firms and banks accounted for nearly one-fifth of the transactions during the year, according to The Food Institute, which has been tracking M&A activity for more than 25 years.

Investment firms and banks were the winner in this year's race for [M&As], said Danielle Breuel, research and education director at the trade association. Transactions carried out by companies in this category clearly contributed to the overall increase in food business [M&As] in 2006.

Purchases made by restaurant firms and supermarkets also played a significant role in the overall increase, with activity in these sectors of the industry bouncing back from a lull in 2005, she added. The magnitude of consolidation among food retailers could continue in 2007, with two key transactions already announced: Whole Foods Market Inc. agreed to acquire natural and organic foods retailer Wild Oats Markets; and warehouse store operator and foodservice supplier Smart & Final Inc. entered into a definitive merger agreement to be acquired by an affiliate of private equity firm Apollo Management LP.

Examining the data by category, considerable increases in M&A activity in 2006 compared to the prior year were seen in the investment firms and banks, restaurants and retailers (namely supermarkets and c-stores) sectors. Investment firms and banks completed a total of 65 acquisitions in 2006, and an additional 23 were announced, but not yet closed at the end of the year. This is the highest number of transactions since the Food Institute began tracking that category separately in 1998. It is also well above the 43 and 48 M&As in 2005 and 2004, respectively. Notably, in 2006 some 36 of the purchases made by investment firms involved a restaurant company (27 completed; nine pending closure), up from 16 completed M&As of restaurant firms or assets in 2005. Investment firms also targeted supermarkets in 2006.

Acquisitions made by restaurant firms increased from 24 in 2005 to 39 completed transactions in 2006, plus another nine that were still pending completion at the end of the year. Meanwhile, in the retailing sector, M&As made by supermarkets jumped to 21 completed, plus 15 pending, up from just nine completed deals in 2005.

The Food processors category, which is broken down into several subcategories, maintained the level of activity it experienced in 2005. Some 99 M&As were completed by food processors overall, and an additional 24 were announced, but not yet closed by the end of 2006. Among the subcategories listed under food processors, meat processors completed 13 acquisitions, up from five in 2005the highest increase among food processors in terms of number of transactions compared to the previous year.

The report, available at www.foodinstitute.com, contains a listing of M&A activity in more than 25 categories, with an overall comparison of the activity over the past five years.

[For more on how major-oil sell-offs are affecting industry acquisitions, watch for the March issue of CSP magazine.]

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