Food industry M&As rebounding, says new report

By Lorraine Heller

- Last updated on GMT

Related tags Food ingredients industry Food Mergers and acquisitions Archer daniels midland

Mergers and acquisitions in the food industry in 2006 took a turn
up compared to the year before, with almost one third of all
activity occurring in the food processing sector, according to a
new guide by the The Food Institute.

The recently published Food Business Mergers & Acquisitions 2006 reveals a total of 348 mergers and acquisitions (M&As) were completed last year, with an additional 102 announced but not yet completed by the end of the year.

This marks an almost 8 percent increase in activity compared to 2005, although still remains around 14 percent below the total five years ago, said The Food Institute, which has been tracking M&A activity for the past 25 years.

The new book contains a listing of M&A activity in over 25 different categories, including food processors, ingredient firms, retailers and investment firms.

It provides information on specific transactions, together with an overall comparison of the activity over the past five years.

According to the new report, some 13 transactions were completed in the year in the Raw Product & Ingredient category, with agri giant Archer Daniels Midland (ADM) accounting for four of the total mergers and acquisitions announced in the year.

During 2006, ADM acquired substantially all of the assets of Group Lysac , which it will use to develop bio-based products.

The firm also acquired UK-based Classic Coverture , a chocolate manufacturer, and expanded its industrial chocolate manufacturing capabilities in Europe.

It also completed the purchase of Lesaffre 's 50 percent interest in International Malting Company , making it now a wholly-owned subsidiary of ADM.

The fourth deal, which was announced, but not completed, consists of ADM contributing its direct holdings in its Wilmar-related agriculture processing joint ventures in China to Wilmar International in exchange for shares in Wilmar International.

Other activity in the sector includes the acquisition by Denali Flavors of an ice cream ingredient manufacturing operation from Toronto-based CoolBrands International .

Denali Flavors, which develops and markets premium flavors for the ice cream industry, expects to double its business with the new acquisition.

Kerry Group completed the acquisitions of Custom Industries, a manufacturer of bakery and confectionery ingredients.

The firm also acquired Nuvex Ingredients, which specializes in customized high-protein and fiber nutritional lines.

According to Kerry, both acquisitions, reaching a total of $83 million, are consistent with the firm's strategy of investing in and expanding its technical capabilities in nutritional and wellness food categories Last year also marked the purchase by Tate & Lyle of Continental Custom Ingredients , which manufactures dairy stabilizers and emulsifier systems, as well as beverage flavors and vitamin and mineral fortification.

The firm expects the acquisition will give it new expertise in the areas of dairy stabilizers, hydrocolloids systems, emulsifiers, vitamins and flavors.

Other acquisitions in the food ingredients industry last year included the purchase of Chr Hansen's Specialty Sweetener Division by American Sugar Refining .

The transaction includes the specialty sweetener product line of molasses, malt, rice syrup, oat extract, honey, and invert and fondant sugar, as well as production facilities in Louisiana and Illinois.

CSM Bakery Supplies North America is merging Caravan Products and American Ingredients Company into a single operating company, while Horizon Milling announced the acquisition of the Canadian grain-based business of Smucker Foods .

US agri giant Cargill acquired a 63 percent stake in Brazil's sugarcane processor Cevasa .

Cargill also acquired 100 percent ownership of Chinese Zibo Cargill Huanghelong Bioengineering ( ZCHB ), which was formed in 2003 to produce xantham gum.

Food processors accounted for nearly one third of the total number of mergers and acquisitions in 2006, with 99 deals closed and a further 24 announced during the year.

According to The Food Institute, "as obesity and other health issues remain at the forefront of media reports and the consumer's mind, one emerging trend seems to be that of large food & beverage manufacturers acquiring smaller scale producers of good for you products, in addition to making their own products healthier."

For example, PepsiCo responded to the growing consumer demand for healthier foods and beverages with the acquisitions of IZZE Beverage Company, a manufacturer of all-natural, sparkling fruit juices, and Azusa, California-based Naked Juice Company from private equity firm North Castle Partners, as well as Stacy'ss Pita Chip Company, an all-natural snack maker.

Meanwhile, PepsiAmericas , purchased Ardea Beverage Co., maker of airforce Nutrisoda, which targets on-the-go consumers with seven products that contain vitamins and minerals.

Other transactions that illustrate the focus on health were Tata Group's agreement to purchase a 30 percent stake in Glacéau, the maker of vitamin water, and private equity firm Lion Capital's agreement to purchase premium natural snack and potato chip maker Kettle Foods.

Related topics Dairy-based ingredients

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