Mars' Kellanova buyout the start of hefty snacking M&A

30-Oct-2024 - Last updated on 30-Oct-2024 at 10:11 GMT

Snacktastic 'mega' M&A deals expected from the snacking sector, even after Mars/Kellanova. Image/Getty

Mega deals within snacking are picking up pace after a quiet start to the year, with Mars’ Kellanova acquisition the tip of the iceberg as strong financial performances provide corporates with healthy cashflows.

Snacking companies had faced a challenging 18 months within both supply and demand – including increased costs, such as cocoa, and tighter consumer purse strings, due to the cost-of-living crisis.

However, the sector has hit a new stride, driven by a more positive macro climate, as well as rising consumer demand for trends like better-for-you snacking and heathy indulgence, a third-quarter Houlihan Lokey snacking report has outlined.

More corporate buyers are entering the M&A space as a result of the market's buoyancy, Houlihan Lokey managing director in the consumer group, James Scallan, told FoodNavigator.

“Many corporates are coming off strong financial performances, bolstered by healthy cash flows and robust balance sheets,” he said.

What do snack brand buyers want?

“This financial stability allows them to pursue acquisitions that prioritise long-term efficiencies over short-term growth.”

Within this, businesses are looking at deals where geographic expansion or diversification of product could be gained, such as confectionery and snacking giant Mondelēz International’s investment in healthier doughnut brand, Urban Legend, this month.

“The shift towards healthier eating has bolstered interest in 'better-for-you' and 'healthy indulgence' snacks, creating opportunities for companies that can innovate in this space,” Scallan said.

Snacking by value — Snacking M&A by value. Source/Houlihan Lokey

“By acquiring businesses that align with trends like healthier eating and sustainable sourcing, they aim to reinforce their market positions, while capitalising on evolving consumer preferences.”

Premium, too, will drive investors and private equity firms towards the category, he predicts, citing Mars’ acquisition of Kellanova as a reflection of “the rise in mega deals”.

Backed by consumer demand for particular trends and brands’ ability to cater to them, snacking is set for continued growth, especially in economies showing signs of recovery.

Snacking buyouts will rise

Snacking manda by volume — Snacking market M&A by volume. Source/Houlihan Lokey

“As interest rates continue to normalise and visibility of performance increases – including volume recovery and inflation pass-through – an uptick in M&A activity is expected as we approach 2025,” predicted Scallan.

Activity is “likely to intensify” as private equity ramps up the competition on the back of improved debt availability and pricing, he continued.

“Additionally, improving consumer confidence as a result of easing cost-of-living pressures should lead to an improved trading environment.”

Further, as inflation and interest rates continue to stabilise, along with improved sentiment, snacking and acquisitions within the category, “promise to grow”.

However, Scallan issued a warning: “Supply chain pressures and raw material costs remain significant challenges [and] while branded snacks benefit from consumer loyalty, ongoing price sensitivity could continue to hinder growth volume.”