Mars could acquire Kellanova as part of portfolio overhaul, potentially signaling larger industry rebound in M&A activity

05-Aug-2024 - Last updated on 05-Aug-2024 at 11:11 GMT

Source: Kellanova

Family-held candy maker Mars Inc. could acquire snack giant Kellanova, according to media reports over the weekend, which, if accurate, could signal the beginning of a long-awaited return to M&A activity in the food and beverage industry following a post-pandemic slowdown in deal flow.

The rumored deal between Mars, which makes M&Ms and Skittles, and Pringles producer Kellanova is “imminent,” according to an exclusive in The Wall Street Journal.

The potential deal could value Kellanova, which has a market value between $22 billion and $27 billion including debt, at about $30 billion – dwarfing other recent high-profile deals, including J.M. Smucker’s acquisition of Twinkies from Hostess Brands for $5.6 billion last year.

Public rumblings of the merger began yesterday when Reuters published an exclusive with unnamed sources, who told the outlet that there is “no certainty” the deal would close or that Mars will be the acquirer if a deal does go through as another suiter could come forward.

Kellanova offers healthier brands & volumes

The buzz comes days after Kellanova bragged about better-than-expected volumes in its second quarter despite industry-wide elasticities that dampened volumes at other food and beverage businesses in the same period.

For example, PepsiCo recently reported low-single digit declines in its snack and beverage businesses, Coca-Cola Co reported a 1% drop in volume in North America where the average price of its products increased 11%, Mondelez International saw a 2.2 percentage point drop in volume alongside a 4.7 percentage point price hike in its second quarter and Unilever reported a 1% decline in its ice cream business in its second quarter despite an overall uptick in volume of 2.6% in the period.

Kellanova attributed its volume gains in consumption and shipping in its second quarter to a “plethora of innovations,” a “return to full commercial activity,” including the types of price promotions that ran pre-pandemic, and increased distribution following shelf resets at some retailers in the second quarter.

The potential acquisition also comes less than a year after Kellogg Co dissolved into two separate businesses – Kellanova, which includes the former company’s snacks and plant-based protein products, and WK Kellogg Co, which has a market value of $1.5 billion and includes iconic cereal brands such as Froot Loops and Special K.

Mars seeks to balance its portfolio with better-for-you options

If a deal is sealed, it would be in keeping with Mars’ larger acquisition strategy in recent years to reshape its portfolio to better align with evolving consumer demand for healthier snacks.

In late 2020, Mars acquired KIND North America in a reported $5 billion deal three years after taking a minority stake in the business. That same year, Mars acquired Nature’s Bakery, for which it more recently purchased a new baking facility in Salt Lake City, Utah and a Chicago-based global research and development hub.

Since then, Mars has continued to expand with the acquisition of nutritious meal company Kevin’s Natural Foods in 2023, and the acquisition late last year of British chocolate retailer Hotel Chocolat.

When will M&A in food, beverage rebound?

Despite Mars’ shopping spree, M&A activity in the food and beverage industry slowed significantly following the pandemic as higher interest rates deterred deals – but some stakeholders suggested deal flow could soon resume, which chatter about a Mars-Kellanova deal reinforces.

International law firm Nixon Peabody Counsel Shaziah Singh, who works extensively in mergers and acquisitions, recently told FoodNavigator-USA’s Soup-To-Nuts Podcast that she believes the food and beverage industry will see an “extreme increase” in M&A activity in the coming year or two.

She predicted an uptick in interest by strategics and private equity investors for better-for-you and premium brands, as well as weight management solutions – fueled in part by the buzz around weight loss drugs but also consumers’ general interest in healthier products post-pandemic when wellness took centerstage.

While popular Kellanova brands Cheez-it, Pop-Tarts and Pringles may not check the better-for-you box, the company’s RxBar, Kashi, Nutri-Grain, Special K, Pure Organic and plant-based protein brands Morning Star Farms and Incogmeato could meet demand for healthier options.