M&A Summary: Q4 2019 - Food and Beverage

February 25, 2020

M&A volume in the Canadian food and beverage (“F&B”) industry continued to decline slightly during the fourth quarter of 2019, dipping to a total of 21 deals involving a Canadian party (announced or closed during the period), from a recent high of 37 deals in Q1. While this represents a third consecutive quarter of declined deal activity, it remains relatively consistent with deal volumes throughout the prior year, with 22 deals announced or closed in the fourth quarter of 2018. Given the potential for F&B businesses to generate economies of scale or cost savings by moving up or down the supply chain via acquisition, the F&B sector remains predominantly driven by strategic buyers, with strategic transactions representing 81% of total deal volume in Q4.

Despite an overall reduction in closed or announced deals this past quarter, certain key industry forces have continued to drive activity. Growth in the industry is expected to be driven by salary hikes, which will lead to an increase in consumer spending especially towards premium, organic products as Canadian consumers become increasingly health conscious. The organic food industry in Canada has nearly tripled since 2006, as consumers are willing to pay a premium for products that are considered environmentally friendly5.

Additionally, niche processors and producers of cannabis-related products have continued to attract the attention of a variety of acquirers. Continued momentum in the cannabis-infused consumer products sector is driving strategic acquisitions of both producers and product developers1. Significant demand in a new beverage sector, cannabis-infused drinks, is anticipated to quickly propel smaller companies like BevCanna Enterprises Inc., following the trend that major players in the energy drinks market previously demonstrated6. The global cannabis-infused beverage market is predicted to jump from $89 million USD in 2018, to $1.4 billion7 and $4.4 billion8 by 2023 and 2025, respectively.

If history repeats itself, it is likely that the smaller, early-mover companies such as BevCanna will see the greatest benefit and growth in this market. BevCanna has already established strong brand relationships with healthy, consumer focused enterprises, and has pre-existing expertise in branding and bottling6.

From a macro standpoint, retail sales saw a larger than anticipated 1.2% decrease in October 2019, which increases the concerns surrounding domestic Canadian economic growth3.

Despite uncertainty in the broader landscape, underlying forces that are fundamental to transactions still exist such as availability of capital and continued ownership succession needs. It is predicted that these forces, combined with core product and consumer trends, will support an active M&A market for Canadian F&B businesses into the year ahead.

Select Food & Beverage Transactions - Q4 2019
Target Buyer Date Transaction Description
Voortman Cookies Limited 2727939 Ontario Inc. 2019-12-02 Hostess Brands, Inc. a producer and supplier of crème-filled snack cakes acquired Voortman Cookies Limited, a producer and top player in crème wafer and sugar-free cookies based out of Burlington, Canada. This 9.1x investment will expand Hostess' snacking portfolio and provide entry into an attractive, adjacent category with market-leading positions and better-for-you characteristics and a meaningful runway for future growth. Hostess plans on incorporating their proven operational model into Voortman's strategy.
Little West Holdings LLC BevCanna US Operating Company Ltd 2019-11-13 BevCanna US Operating Company Ltd., a manufacturer and developer of cannabis-infused consumer products, acquired Little West Holdings LLC., a producer of cold-pressed juices. BevCanna, a Vancouver based corporation, believes Little West products, including a line of hemp-derived CBD cold-pressed juices, will supplement their growing portfolio with its reputation for high-quality and focus on health and wellness.
Southern Cliff Brands Inc. Valens GroWorks Corp 2019-11-11 Valens GroWorks Corp., an extractions product and service provider for cannabis products, purchased Southern Cliff Brands Inc. (o/a Pommies Cider Co), a manufacturer and distributor of hard cider in the Greater Toronto Area. As Valens works to attain market share in the cannabis beverage market, they believe Southern Cliff Brands will establish presence in Eastern Canada. The micro processing license currently held by Pommies will support Valen's ability to enter the market. The acquisition adds a new platform to the Valen's portfolio that will bolster their white-label solutions in categories such as beverages and edibles.
Viandex and Maine Coast Shellfish Premium Brands Holdings Corporation (TSX:PBH) 2019-11-11 Premium Brands Holdings, a producer, marketer and distributor of branded specialty food products acquired US lobster supplier Maine Coast Shellfish and Quebec, Canada-based distributor Viandex Distribution Alimentaire. In addition, Premium Brands also purchased a 50% stake in North Delta seafood, a fishing and processing firm based in British Columbia. All three businesses in the seafood market represent best-in-class operations and strengthen one or more of Premium Brand's existing businesses.
Sun-Rype Products Limited Lassonde Industries Inc. (TSX:LAS.A) 2019-10-29 Lassonde Industries Inc., who develops, manufactures, and markets various ready-to-drink fruit and vegetable juices for an international market, acquired Kelowna, BC based Sun-Rype Products Ltd., a fruit-based food and beverage products manufacturer. Lassonde believes this will strengthen the company's market in Western Canada and North-West US. Lassonde will leverage the existing brand in their strategy to lead the fruit-based snack and beverage industry in North America.



Sources:

[1] https://www.visualcapitalist.com/boom-in-the-cbd-beverage-market/
[2] https://www.prnewswire.com/news-releases/pet-food-ingredient-market-worth-54-3-billion-by-2025--exclusive-report-by-marketsandmarkets-300942806.html
[3] http://www.rbc.com/economics/economic-reports/pdf/other-reports/ecotrend.pdf
[4] https://www.cnbc.com/2020/01/15/fed-could-use-negative-rates-if-us-recession-hits-goldman-sachs-says.html
[5] https://www.allianceexperts.com/en/knowledge/countries/america/the-food-and-drink-industry-in-canada/
[6] https://marketrealist.com/2019/10/bevcanna-big-breakout-beverage-market-identified/
[7] https://www.forbes.com/sites/nickkovacevich/2019/04/15/drink-up-the-next-frontier-in-cannabis-is-beverages/#24a2b9a378d5
[8] https://www.zionmarketresearch.com/news/cannabis-beverages-market

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