Deal-making in the packaged-food industry is anticipated to gain momentum in the new year after what turned out to be a generally disappointing 2024, with M&A remaining below historical norms.
However, 2025 is not expected to be a runaway event with the persistence of valuation gaps between buyers and sellers putting a break on the number of deals, although the disparity is showing signs of declining as cost inflation fades into the background.
The end to the global cycle of interest-rate rises is likely to provide a fillip to deal activity but questions remain over whether borrowing costs will remain higher for longer amid potential headwinds including the yet unseen impact of the UK budget, a new US president, ongoing conflicts and the state of world economies.
Eyes will no doubt be on private-equity investors. Will they let go of a flood of assets that have been held in portfolios for longer than normal after years of uncertainty caused by Covid-19, inflation, the cost-of-living crunch and historically high interest rates? The jury is still out.
Just Food spoke to three M&A advisers for their thoughts on deal-making across the food sector in 2025.
Jeroen van den Heuvel, Oppenheimer
“The market in ‘24 was definitely better than ‘23, although ‘23 and ‘22 were also depressed years. People could sell in ‘24 based on their ‘23 financial numbers and forecasts for ‘24. Interest rates also came down a bit but it was not a deal bonanza in food.
“M&A colleagues had much higher expectations than how it turned out to be, primarily because there was still a real gap between the price expectations of the seller and the buyer.
“Private equity was still less active, with higher interest rates than in the last ten years. And it was a more polarised market – good assets got sold for good prices but assets of a little less quality did not. They were put on the shelf.
“2025 will be better than ‘24 unless we have a massive geopolitical event. Forecasts for the European economy are also more positive because this year there was negative growth in a number of EU countries.
“Inflation is also now under control and let’s not forget where we came from a few years ago with massive inflation. The first half will be more active.
“A real important driver for next year is exits by private-equity funds. They’re sitting on this massive pile of portfolio companies and next year they just have to sell. I see that with the invitations to pitch. For the whole of next year, you will see a lot of divestments from private-equity funds.
A real important driver for next year is exits by private-equity funds.
Jeroen van den Heuvel, Oppenheimer
“I also see really strong consolidation, dominated by strategic players, who have a lower cost of capital, whereas private equity has been less active in the market for the last three years.
“Bakery has been exceptionally busy and active this year, much more than any other year. I’ve been following the bakery market since 2007 so this is a blowout in terms of the number of transactions. And I think there’s no end to it.
“The category is resilient but I think they profited probably more than all the other food companies from the effect of the input prices and then passing through prices to the retailers and foodservice. Their profitability is a little bit inflated now, but that makes it easier to do deals.”
Andreas Kulcsar, Bryan & Garnier Co.
“When you look at what type of deals happened in 2024, a number of businesses were bought opportunistically or in some instances out of administration but that share of transaction volume has decreased because more companies have stabilised. There was a higher share of healthy M&A volume.
“Depending on which sub-sector you look at, there was still quite a big valuation gap and that led to a number of transactions not concluding or still being ongoing.
“I think we will also continue to see more transactions next year in a bilateral setting rather than in a huge auction process: one on one, where there have been talks for years and months to create a deal situation that is a win for all stakeholders.
“In some sub-sectors of F&B, the valuation gap may remain on a case-by-case basis depending on whether the counter-parties can come to an agreement.
“In other instances, it’s about really showcasing and demonstrating that the business is now on a sustainable level of profitability. Not just showing double-digit top-line growth, for example, but having that defendable and growing margin, and then I think you can close that valuation gap.
“Some private-equity firms are increasingly coming under pressure to divest their more mature portfolio companies and return the proceeds to their investors. I think there will be a surge in those types of PE exits over the next 24 months.
“What is still a concern for investors is the economic and geopolitical landscape in various major European and international regions, which could be disruptive to food and beverage companies supply chains.
“It could be an interesting year because there’s so much dry powder that needs to be deployed. On the other hand, there’s also the financial sponsors that have consumer and dedicated F&B teams that have been busy scanning the market.
It could be an interesting year because there’s so much dry powder that needs to be deployed.
Andreas Kulcsar, Bryan & Garnier Co.
“For opportunistic bolt-ons, let’s call them, there are probably going to be fewer of them because the targets that have survived Covid have stabilised their businesses. They will less likely command a discount but rather trade at a full valuation.
“Equally, there will be larger deals, be it carve-out divisions from blue chips, but also larger portfolio companies where they are now on the radar of large strategic companies.
“M&A activity will initially be at a similar pace as this year and then, depending on how the economic and geopolitical situation shapes up, it could potentially accelerate toward the second half of next year.”
“VMS [vitamins, minerals and supplements] businesses will continue to be interesting. Some are already sponsored and others are still privately owned, and they're disrupting the large guys. Some of them will command a premium going forward because they have developed such a strategic and differentiated operational model.
“Functional foods regarding health and wellness will be an interesting topic for both strategic and financial sponsors.
“And then I think branded foods and beverages companies that have a differentiated story, whether it’s sustainability on the supply chain or some really coherent and consistent storytelling ability of the brand that then commands shelf space.”
Alex Masters, Lincoln International
“We had expected the volumes of food and drink activity in the UK to have picked up but it’s been broadly flat.
“In 2022 and 2023, and into 2024, effectively we’ve seen about 50 deals a quarter in food and beverage across all company sizes. While it’s been pretty consistent at about 20 deals in drink and about 30 in food a quarter, the market had been expecting that level of activity to pick up.
“We’re still thinking deal flow will build into 2025 and there are two fundamental reasons. One is that the interest-rate cycle has peaked.
“But the more fundamental thing is we’ve had so much volatility over the last few years. You’ve seen negative consumer sentiment around Covid, the Ukraine crisis, the massive energy price and input-price shocks.
“Companies are trading in a more certain environment now. Businesses thinking about coming to market can hopefully have a period of at least 12 months, or maybe 18 months, of stable profit-making in a non-volatile environment. That’s a profit profile that investors can be more confident about buying into. People feel more confident when they can see real, actual profits, rather than normalised profits.
“Reducing funding costs should also help unlock deal activity. Will it explode overnight? I don’t think so but I expect it’ll build through 2025. I think buyers will be, on average, more bullish and therefore there’ll be more times when the buyer and seller expectations meet and that will lead to more deal activity.
“There will be more of a gentle flow in private-equity activity. I don’t think there will be a dam-burst moment anytime in ‘25 but there will be more assets coming to market. Private equity will be sellers as there is less private-equity interest to buy normal businesses. They are focused on acquiring the very best opportunities.
“We do see pet-food consolidation continuing. We’re talking to possible buyers and we’re talking to management teams thinking about bringing their business to market. There will definitely be ongoing activity through ‘25.
“We see bigger food companies who think they’ve missed out over the last decade who want to get into what they see as advantaged forms of snacking because they want to play this trend.
“Overall M&A activity levels should pick up and I think snacking will remain interesting.”
