M&A Summary Q2 2019 - Food & Beverage

August 07, 2019

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M&A activity in the food and beverage (“F&B”) industry for the second quarter of 2019 remained strong, as a total of 31 deals involving a Canadian party were announced or closed during the period. While this volume represents a slight decrease from the 37 deals undertaken in Q1 of 2019, the industry has seen continued increases in year-to-date activity, as only 22 deals were announced or closed during Q2 of the prior year. Driven in part by the opportunity to generate economies of scale through vertical integration, strategic buyers represented the vast majority of purchasers during Q2.

Consistent with the prior quarter, the primary driver of increased F&B transaction activity during Q2 relates to continued interest in the fast-growing cannabis market, as industry participants seek to acquire land, production capabilities and intellectual property located both in Canada and abroad. The expectation is that activity will continue into Q3 of 2019 and several quarters to follow, driven partially by market participants who wish to establish an industry footing in anticipation of continued state medicinal and recreational marijuana reform in the US, as well as the possibility of US federal legalization in the near future.

The ongoing culture shift toward healthier, organic food and beverage products is another factor contributing to increased M&A activity in the sector, as companies seek to diversify away from traditional F&B product offerings into more differentiated niche markets.

Ongoing trade disputes between China and the US have continued to take a toll on global financial markets, pushing 2019 and 2020 growth expectations lower and unemployment higher. To cushion the resulting economic slowdown, both the European Central Bank and Federal Reserve have signalled that they will inject fiscal stimulus by the end of 2019, with the possibility of interest rate cuts as soon as this month. While Canada is not immune to the political tension, economic growth was moderate in Q2 of 2019, and as such there is no expectation that the Bank of Canada will decrease the key lending rate in the short term. Although there continues to be a lot of uncertainty surrounding the macroeconomic landscape, continued social and cultural shifts, inexpensive debt financing, continued ownership succession needs and favourable foreign exchange rates result in a Canadian F&B market that remains conducive to M&A activity in Q3 and beyond.

Select Food & Beverage Transactions - Q2 2019
Target Buyer Date Transaction Description
HyLife Ltd. Charoen Pokphand Foods Public Company Limited (SET:CPF) 4/22/2019 Charoen Pokphand Foods Public Company Limited, an agro-industrial and food conglomerate headquartered in Thailand annouced their acquisition of HyLife Limited, Canada's leading producer and global exporter of pork products. The transaction will propel HyLife's growth into the Asian, North American and industrial markets while showcasing Manitoba's locally grown and produced pork.
Raw Chocolate Alchemy, LLC Gabriella's Kitchen Inc. (CNSX:GABY) 5/16/2019 Gabriella's Kitchen Inc. (CNSX:GABY), a US-focused, consumer packaged goods company operating a house of brands in the cannabis industry and in the mainstream grocery channel announced its acquisition of Raw Chocolate Alchemy LLC. Raw Chocolate Alchemy LLC, doing business as Lulu's Chocolates, produces 100% organic, raw, vegan chocolate. The transaction will form the foundation upon which Gariella's Kitchen will build their CBD and THC chocolate and confectionary business.
The Kiju Brand of Nothing But Nature Inc. Zurban Beverages Inc. 5/21/2019 Zurban Beverages Inc., a Quebec producer of organic juice and iced tea entered into an agreement to acquire the assets of The Kiju Brand of organic juice and iced tea from Nothing but Nature Inc., a subsidiary of GreenSpace Brands. GreenSpace will be using the proceeds from the transaction towards general working capital purposes, and to pay down debt, which is estimated to be $13 to $15 million post-closing.
Spring Oaks Greenhouses, Inc. Green Growth Brands Inc. (CNSX:GGB) 6/4/2019 Green Growth Brands Inc. (CNSX:GGB) entered into a definitive agreement to acquire Spring Oaks Greenhouses, Inc., which holds a medical marijuana dispensary license and authorization to operate as a Medical Marijuana Treatment Center in the state of Florida. The medical marijuana dispensary license authorizes Spring Oaks to initiate production, processing, and dispensing of medical marijuana and marijuana products.
Mabel's Bakery & Specialty Foods Inc. Fresh City Farms, Inc. 4/9/2019 Toronto's Fresh City Farms, Inc., an award-winning urban farm and omni-channel retailer, announced that it has acquired Mabel's Bakery & Specialty Foods, specializing in homestyle baked goods, prepared foods, ready meals and artisan breads and cheeses. The acquisition will enable Fresh City to continue to improve their organic and local sourcing, be able to add to their current offerings, and make more of their products available to more customers.

Graph of Buyer Target Geography

Graph of Deals announced

Graph of Deals involving Cadnadian Business

Please contact our Corporate Finance team to learn more about these transactions.