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Published: May 14, 2019
Updated: May 14, 2019
Despite continued macroeconomic uncertainty, highlighted by Canada's first inverted yield curve since the 2008-09 recession, and a lack of meaningful progress on cross-border trade negotiations, the food and beverage ("F&B") M&A landscape remains attractive for buyers seeking to enter new markets or increase scale.
Notwithstanding several macro headwinds, the Canadian food and beverage market saw a significant increase in M&A activity over the prior quarter, highlighted by 37 deals involving a Canadian party. This deal volume represents an increase of 95% over the 19 transactions announced or closed during Q1 2018, and an increase of 68% over the 22 transactions announced or closed during Q4 2018. A significant portion of this M&A activity can be attributed to continued interest and investment in the cannabis space, as both domestic and foreign companies seek to establish themselves and capitalize on the burgeoning North American edibles market, which is estimated to generate annual sales of CAD $4.1 billion by 2022.
The combination of deteriorating profit margins and continued geopolitical uncertainty has resulted in highly volatile public equity and debt markets, to which the F&B industry is not immune. Barring material changes in the policy stance of both the Bank of Canada and Federal Reserve, this volatility is expected to continue into Q2 and the remainder of 2019 as the global economic slowdown continues. That said, further weakening of the Canadian dollar represents an opportunity for foreign investors to acquire Canadian assets at a significant discount, with the expectation that the exchange rate will revert to the mean over the medium to long term. Furthermore, there has been no significant change to some of the underlying fundamentals driving M&A activity in the F&B industry, namely inexpensive debt financing, growing ownership succession needs and significant equity capital to be deployed. As such, the Canadian F&B market is expected to remain conducive to M&A activity in the near term.
| Target | Buyer | Date | Transaction Description |
|---|---|---|---|
| Hillsboro Corp Inc. | Zenabis Global Inc. (TSXV:ZENA) | 01/28/2019 | Zenabis Global Inc., a leading medical and recreational cannabis cultivator based out of Surrey, BC acquired 51% of Hillsboro Corp Inc., a kombucha manufacturer. Zenabis is targeting best-in-class manufacturers in a variety of sectors to enable the development of a variety of cannabis-infused products. |
| Dairy Crest Group Plc | Saputo Inc. (TSX:SAP) | 02/22/2019 | Saputo Inc., the largest processor of milk in Canada, announced their acquisition of UK-based Dairy Crest Group Plc, a leading manufacturer of dairy products. The transaction enables Saputo to expand its international presence and enter the UK market by way of an established industry player. |
| Manitoba Harvest Hemp Foods | Tilray, Inc. (NasdaqGS:TLRY) | 02/20/2019 | Manitoba Harvest Hemp Foods, a Canadian producer of hemp products has been acquired by Tilray, Inc., a leading pharmaceutical and cannabis company headquartered in Nanaimo, BC. The acquisition accelerates Tilray's presence in the US market as Manitoba Harvest Hemp Foods' products are already on the shelves of many of the country's largest retailers. |
| CBD Lifestyle Corp. | River Wild Exploration Inc. (CNSX:RWI) | 01/02/2019 | River Wild Exploration Inc. entered into an agreement to acquire 100% of the outstanding shares of CBD Lifestyle Corp, a company involved in the development and marketing of beverages infused with hemp-derived extracts and derivatives. Upon transaction close, the company is anticipating launching its first commercial CBD beverage in the US sometime during 2019. |
| MILLTEC Machinery Ltd. | Ag Growth International Inc. (TSX:AFN) | 03/11/2019 | Ag Growth International Inc. ("AGI") entered into binding purchase agreements to acquire 100% of the outstanding shares of MILLTEC Machinery Limited, a diversified agro-processing equipment manufacturer headquartered in India. The transaction allows AGI to enter the rice processing systems space with a complete product line and establishes the company's platform in India. |