In Transactions

Why large packaged food groups seek more and more M&A outside their expected sweet spots

On August 1, 2016, Groupe Bel, a leading French cheese player, announced the planned acquisition of MOM Group, best known for its leading fruit squeezer brands Materne and GoGo squeeZ in France and in the US. Cheese and fruit puree together, not obvious at first sight…

But clearly not a lone case as, contrary to expectations, more and more packaged food groups are making acquisitions outside their expected natural “sweet spot”. BolthouseAnnie’s and more recently NakdQuornGood CultureMichel et AugustinMOM Group…, the increasing number of new frontier bolt-on acquisitions constitutes a structural and accelerating trend.

These “out of the box” bets go beyond the nice snacking / “good for you” trends. It is also about readjusting and eventually surviving. And to thrive, large packaged food groups are willing to transform their current organizations to ensure that the excitement of the deal closing is not immediately followed by a write-off.

Why go ‘’outside the box’’

Large packaged groups are experiencing a one-of-a-kind new deal on food, made of new and irreversible expectations from Millennials in particular and urban and emerging consumers more generally: snacking (food anytime, anywhere), healthy wellness, transparency and authenticity as well as digital language. There is no way back on these changes.

On the distribution side, a new landscape is also taking place: new routes for consumers (Amazon…), increasing concentration of already few existing food chains (see France), struggling traditional mall/retail places against fast retailers and outlets, forcing the former to react. Whole Food 365 turning its stores into a “hangout” destination is just another example of going beyond the mere purchasing act vs. sharing an experience.

Reaction time is often longer than one could expect in large organizations so impact of this new challenge is ongoing. Between 2009 and 2015 the top 25 US food and beverage companies have lost $18bn in market share against smaller and more nimble organizations. In H1 2016, the Fortune 500 packaged food groups have seen their sales decline by 6%, in line with the trend experienced at the end of 2015.


The way large groups acquire bolt-on added value is so far diverse, from traditional to disruptive. The ‘’traditional’’ path consists in including the newly acquired company somewhere in the existing matrices, with debatable success. Kellogg’s started to move the fast growing quirky healthy snacks Kashi from the San Diego area to the group HQ in Michigan and ended up moving Kashi back to California. Learning the hard way…

But the ‘’growing smart’’ trend consists in harboring these jewels through relatively autonomous in-house venture capital type structures.

US companies seem to be the most advanced. One of the pioneers is The Coca-Cola Company, through the Venturing Emerging brands, created in 2007, to “fuel disruption in Consumer Products”.  Much more recent examples have followed: General Mills has been harboring these investments through its 301 Inc subsidiary, “the emerging brand elevator”, with ticket below $5m and has aggressively started to implement this strategy through the acquisition of super-healthy snacks RhythmSuperfoods and cottage food start-up Good Culture in H1 2016 among other examples. Kellogg’s incepted its “1894’’ entity last June with $100m of dry powder to “invest in companies pursuing next-generation innovation, bolstering access to cutting-edge ideas and trends”.

In Europe, Unilever Group for instancecan leverage either Unilever Ventures set up in 2011 and targeting small but fast-growing digital, personal care or refreshment companies and nurturing 40 companies in portfolio, or alternatively Unilever Foundry, a program that began in May 2014 for tech start-ups.

Danone Manifesto Ventures is another striking example of large groups smartly adapting their organization to boost unique hyper-growth entities. Ekapartners, which I founded two years ago to assist brands and entrepreneurs, advised the shareholders of Michel et Augustin in the so far minority sale to Danone, which is the first investment this newly incepted New-York-based structure has completed.

Although most of them are structured in-house, some firms have decided to outsource the venture capital effort: for example Acre Venture Partners will manage a $125m initiative initially funded by Campbell.

Extracting mutual value creation

By going ‘’outside of the box’’, large corporations acquire complementary added value that they could not develop organically or at a prohibitive cost. This added value usually takes one or several of the following forms;

  • An authentic, genuine food experience. The most striking example is probably Michel et Augustin, a unique entrepreneurial experience being shared live on all media (packaging, digital…). Danone’s move was not obvious at first sight. Going back to biscuits after having divested Lu to Kraft, adding a “healthy indulgence component” to “health through food” motto and through a firm which thrived on being “different” all stacks up and confirms the “outside of the box” nature of such move from one of the largest packaged foods players. As explained in our Post dated 30 June 2016 “Michel, Augustin et Emmanuel”, beyond surprise, there are clear mutual benefits to such a partnership between two actually disruptive companies.
  • A healthy snacking exposure. With Materne and GoGo SqueeZ, Groupe Bel dares to go to fruit (Danone failed with Chiquita in their joint venture), and reinforces its snacking exposure with products appealing to the health-conscious. No surprise snacking is a hot topic: over the last 20 years, average time spent for lunch has decreased from 1h40 to 40mn.
  • A breakthrough product. When Philippine Nissim finally acquired the meat substitute leader Quorn after a fierce auction, the instant noodle world leader clearly entered a new healthy fast growing food area.
  • Lastly, large packaged food groups acquire a lean, no-nonsense, hypergrowth environment. When I was running the Michel et Augustin process, how many times have I heard French or foreign potential partners saying “we need them to shake up our own organization.” It’s a rejuvenation shot.

In return, besides cash-out for usually long-time friends & family shareholders as well as managers, the large packaged food groups provide growth and profitability options that the target can leverage to go faster and stronger. Case studies, experience, infrastructures, route-to-markets… they can normally fulfil ambitious founders’ dreams, beyond expectations. They have everything to do so…

The consequences on the M&A market are not small. By daring to go outside their sweet spots through venture type structure, large corporations show agility and incentive for managers: tools used to be the daily bread of private equity houses (PEHs).

More competition on high quality potential targets (Millenial-driven, innovative, digital and fast growing) has already been driving valuation upward. Robust double-digit Enterprise Value (EV)/ EBITDA multiples are not only the norm but we notice that the EV/Sales ratio is also picking up. When tempered by growth, and possibly by profitability, through regression analysis, EV/Sales ratio becomes flawless.

However, in order for these bolt-on moves not to become a soon-to-be-written-off investments, new owners should continue to treat them post acquisition as uniquely as possible. Like zebras, both can look in complementary directions as long as they stay close. This constitutes probably their biggest challenge.

Eric Toulemonde