Aspect in the News: Nutrition Business Journal’s Top Deals of the Year – By Ian Malone

by Ian P. Malone

San Francisco, CA — February 1, 2020 — Aspect Consumer Partners’ Ian Malone highlights the Nutrition Business Journal’s top deals of 2019 in the article, 2019 Deals of the Year.  The article discusses the continuing themes that have been driving M&A within the Nutrition Industry and profiles the top deals of the year.

2019 Deals of the Year — Continued Enthusiasm Amid Emerging Caution

For the U.S. Nutrition Industry, 2019 was the year of the missing mega-deal. While 2018  saw  a number of multi-billion dollar transformative deals, such as Keurig Green Mountain’s $25 billion merger with Dr. Pepper Snapple Group, General Mills’ $8 billion acquisition of Blue Buffalo Pet Products and Conagra’s $11 billion acquisition of Pinnacle Foods, 2019 only saw a handful of deals that cracked the $1 billion mark.  In fact, each of these large 2018 mega-deals mentioned above were larger than our selection of  2019’s  top  10  deals  combined.  This also occurred with the backdrop of a robust overall M&A market—worldwide mergers and acquisitions activity (across all industries) topped $3.9 trillion in 2019, a 3% improvement over 2018 and the sixth consecutive year of total volume more than $3 trillion.

But don’t panic!  While 2019 marked   a hiatus from the blockbuster nutrition industry deals witnessed in prior years, strategics continued to be enthusiastic acquirors of growing, innovative brands such as OLLY, Quest Nutrition and Drunk Elephant, and private equity remained very active acquirors and investors in companies across VMS, food and beverage, beauty and personal care.  Underlying consumer market trends remain in place, namely that consumers are increasingly seeking healthier, cleaner products with functional benefits.  The brands best able to meet consumers’ evolving needs are predominantly newer, fast-growing, entrepreneur-led companies.  Large incumbent strategics, with their portfolios of legacy brands, have struggled to grow, leading them to acquire the brands that are growing.  Naturally, a robust private equity ecosystem has evolved to finance and grow these brands to scale. These underlying factors remain fundamental drivers of M&A activity in the industry, and they haven’t gone anywhere.

On one hand, the explosion of mega-deals in 2017 and 2018 was simply bound to revert to the mean, but the dearth of such deals in 2019 does signal a growing caution that has emerged among large strategics in the industry, and it has manifested in more transactions involving strategics selling assets. For some, large deals done in previous years have caused indigestion.  Campbell Soup Company, which acquired Snyder’s Lance and Pacific Foods in 2017 for a combined value of nearly $7 billion, sold off five businesses in 2019, including Bolthouse Farms, Garden Fresh Gourmet and several international businesses, in part due to pressure from an activist investor.  The market applauded these moves, and Campbell Soup’s stock price rose 53% in 2019.  Another blow to the mega-deal was the implosion of KraftHeinz, which saw its stock price decline 26% in 2019.  This brought into question the “3G model” (brought to prominence by Brazilian private equity firm 3G Capital) of consolidating large CPG companies with legacy brands in large-scale M&A transactions and slashing costs to drive profitability and cash flow.  While 3G’s strategy had worked extremely well for years, it hit a wall with KraftHeinz and its portfolio of slow-growing and declining brands as the market realized the company could no longer cut its way to earnings growth.

For 2019’s top deals, while mega-deals didn’t show up to the party, there remained a steady drumbeat of strategic acquisitions, private equity activity and a few high-pro- file IPOs driven by strong underlying consumer trends.  We see several different themes among 2019’s top deals, including:

Strategics buying growth and innovation – We continue to see large strategics acquiring brands for growth and innovation.  We see this in all segments of the broader nutrition / healthy living industry, including food, VMS and clean beauty.  Highlights include Unilever’s acquisition of OLLY, Simply Good Foods Company’s acquisition of Quest Nutrition, Shiseido’s acquisition of clean-beauty leader Drunk Elephant, Mondelez’ acquisition of Perfect Bar and Hershey’s acquisition of ONE Brands.

Private Equity activity – We continue to see strong private equity activity in the Nutrition Industry.  There is a robust investment ecosystem providing growth capital to emerging challenger brands, such as Swander Pace’s investment in Bragg Live Food Products and VMG Partners’ investment in NutPods.  Private equity has also increasingly become buyers of business lines that strategics have cast off, such as Campbell Soup Company’s sale of their Bolthouse Farms brand and their Arnott’s/international business to Butterfly Equity and KKR, respectively.

Strategics selling assets / restructuring – Divestments gained pace among strategics in 2019, as they restructured and refocused their portfolios.  While not an entirely new trend (witness Unilever’s sale of its spreads business, now named Upfield, to KKR and Reckitt Benckiser’s divestment of its food division to McCormick in 2017), 2019 saw an uptick in the number of these transactions, including Hormel’s sale of its CytoSport brand to PepsiCo and Danone’s sale of Earthbound Farm to Taylor Fresh Foods.

Unicorns (and budding unicorns) making waves – The two leading plant-based meat unicorns had a memorable 2019, with Beyond Meat having its successful initial public offering and (honorable mention) Impossible Foods raising over $300 million at a $2 billion post-money valuation with private investors (both in May).  Another unicorn to go public, Peloton Interactive, also had a strong showing in 2019.  Honorable mention also goes to Siete Family Foods (a budding future unicorn) on their investment from Stripes Group.

The full article can be accessed via the link below, or on the NBJ’s website.

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