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.