Food and drink execs expect M&A in next two years
According to a survey by U.S. audit firm KPMG 67% of executives said it is likely their companies will participate in merger activity over the next two years, with a rough split between likely buyers and likely sellers.
One of the main motivations for sellers is that they probably have brands they do not want to invest in anymore, but were unable to unload during the downturn, said Patrick Dolan, the leader of KPMG's consumer markets and food and beverage practice in the United States. "It's not like they're desperate to get rid of them, but they really do want to reinvest the money in some brands that make more sense for their strategy," Dolan said. Sellers were getting more realistic about the prices their assets were likely to fetch, making it easier for sellers and buyers to agree, he said, adding that buyers were being motivated by pressure from shareholders to make use of cash piles that are otherwise not earning high returns.
The consumer goods sector has always been fertile ground for mergers and acquisitions, but mega-deals like Kraft Foods Inc's purchase of Cadbury have been rare since the economic downturn. Clorox is the object of a takeover bid by billionaire investor Carl Icahn, while Post cereals maker Ralcorp Holdings Inc. recently rebuffed an offer from ConAgra Foods.
"It's not mega, mega deals, but I think it's pruning the product and market aspects of their portfolio. Then, they'll be after geographic expansion, typically in the emerging markets, and using acquisitions to get into new products and services," Dolan said.
About 39% of respondents–senior executives at mid- and large-cap food and beverage companies such as Coca-Cola Co and Kraft-said they expected to deploy cash this year, with another 39% saying they expected to do so next year. In terms of hiring, 46% of the 101 respondents said they planned to add jobs next year, but 38% are calling for an increase of less than 6%.