M&A volume in the Canadian food and beverage (F&B) industry declined during the third quarter, dipping to a total of 22 deals involving a Canadian party (announced or closed during the period).
While this represents a second consecutive quarter of declined deal activity, it remains relatively in-line with deal volumes throughout the prior year. Continued macroeconomic uncertainty and a shifting landscape in the cannabis market are likely impacting buyers' appetites and general deal volume.
Despite an overall reduction in closed or announced deals this past quarter, certain key industry forces have continued to drive activity. Niche processors and producers of cannabis-related products have continued to attract the attention of a variety of acquirers. In addition, continued momentum in the plant-based meat alternative sector is driving strategic acquisitions of both producers and product developers. Also, several transactions have highlighted the growth taking place in the pet foods and nutrition space. Research firm Marketsandmarkets projects a compound annual growth rate (CAGR) of 6.6% from 2019 to 2025, reaching US$54.3 billion.
From a macro standpoint, expectations for a Canadian market recession, a dampened global economic outlook, and other factors contribute to a slower forecast for M&A activity. In an effort to prevent an economic downturn, both the European Central Bank (ECB) and the U.S. Federal Reserve announced cuts to interest rates.
The ECB announced in September 2019 a quantitative easing plan to inject €20 billion as well as a cut to the main deposit rate by 10 basis points. The deposit rate after the cut sits at -0.5%. The U.S. Federal Reserve lowered interest rates by a quarter of a percentage point in September 2019, which was the second time since July 2019 when it was lowered by the same amount. Despite uncertainty in the broader landscape, underlying forces that are fundamental to transactions still exist such as availability of capital, continued ownership succession needs, and a favourable Canada-U.S. exchange rate. Together with core product and consumer trends, these factors should support an active M&A market for Canadian F&B businesses in the quarter and year ahead.
| Target | Buyer | Date | Deal Value (CAD $M) | Transaction Description |
|---|---|---|---|---|
| Delmar Commodities Ltd. | Ceres Global Ag Corp. | 7/16/2019 | 22.85 | Ceres Global Ag Corp, a procurer and provider of agricultural commodities and value-added products, purchased Delmar Commodities Ltd, a provider of processing and supply chain management of agricultural products. Ceres believes the acquisition of Delmar's grain assets are important in adding strategic origination for their core products, while also significantly advancing their portfolio diversification strategy with the inclusion of their soybean crush, agricultural seed sales & distribution and birdfeed product lines. Delmar brings key capabilities, market knowledge and customer relationships, as well as its talent. |
| Modern Meat, Inc. | Navis Resources Corp. (CNSX:SUV) | 9/12/2019 | 3.48 | Navis Resources Corp., a mineral exploration company in Canada, purchased Modern Meat Inc., located in Vancouver, B.C., a developer of plant-based meat alternative products, which has become a popular sector following the recent IPO transaction of Beyond Meats on the Nasdaq. Navis' acquisition of Modern Meat is a play to allow it to enter into this burgeoning market of plant-based meal alternatives. |
| DRIP Beverages Inc. | SBD Capital Corp. (CNSX:SBD) | 9/26/2019 | 2.00 | SBD Capital Corp., a producer, seller, and distributor of alcohol products through its subsidiary, Secret Barrel Distillery Corporation, purchased Drip Beverages Inc., a producer of cannabis infused beverages and alcohol. Using a proprietary approach to formulating low calorie micro-dosed products, Drip Beverages has evolved its product lines to suit the tastes of both Cannabis and CBD beverage consumers. By leveraging partners with proprietary extraction IP, and a history of established sales brands, Drip Beverages will allow SBD Capital to move into the market quickly and efficiently. |
| Pettanicals Pet Treats Inc. | Hemp Technology Inc. (OTCPK:CPOW) | 9/18/2019 | 0.26 | Hemp Technology Inc., a producer, manufacturer, and distributor of hemp-derived phytocannabinoids worldwide, purchased Pettanicals Pet Treats Inc., a producer of nutritional pet supplemental products. This transaction allows Hemp Tech to utilize the well-established Pettanicals' branded products to introduce cannabidiol (CBD) infused high performance nutritional pet health supplements to international markets. |
| Assets of HapiFoods Group Inc. | Natures Hemp Corp. (OTCPK:NHMP.F) | 8/26/2019 | 0.27 | Natures Hemp Corp., a developer of hemp-based food and medicinal products, purchased a facility of HapiFoods Group Inc, a manufacturer of breakfast cereals. The facility was their gluten free food production business facility. |