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    Food & Agriculture Q4 2020

    Q4 2020 Food Agriculture

    Industry Trends

    COVID-19 Impact on M&A

    The Food & Agriculture monthly M&A volume is up over 34% in December 2020 (47 transactions) compared to the same period in 2019 (35 transactions). Strategic buyers drove nearly 89% of transactions between March 22 – December 31 (254 transactions) compared to 2019 which saw nearly 84% of transactions (258 transactions) completed by strategic buyers within the same period. Nearly 44% of the transactions closed between March 22 – December 31 (135 transactions) comprised targets engaged primarily in the subsector of Packaged Foods and Meats.

    The New Cash Crop May Be Carbon

    Agriculture companies are voluntarily looking for ways to reduce their carbon footprint to attract new, environmentally conscious buyers and investors. While the shift to reducing carbon-footprints is voluntary for many companies, farmers have found that not harvesting specific fields and selling the reduced emissions as carbon "credits" can provide some padding to their bottom line. Shopify, one of many companies who purchase carbon credits, use the carbon reductions generated by farms to offset the emissions associated with their day-to-day operations. On average, farmers who have participated in these carbon credit programs receive between $7 and $40 per acre.1

    Tom Vilsack Selected as USDA Secretary

    President-elect Joe Biden chose former USDA Secretary Tom Vilsack to again head the U.S. Department of Agriculture. Mr. Vilsack has experience in the position, having served throughout the Obama administration's two terms. If confirmed, Vilsack will be entering the position amidst pandemic strains paired with damaged markets from recent trade battles. With a 2020 budget of $153 billion, the USDA oversees nearly every aspect of food production in the United States.2

    U.S. Targets Canada over Dairy Trade Pact Violation

    The U.S. has filed a complaint against Canada, claiming U.S. Dairy farmers are restricted from Canadian markets. The complaints state that Canada violates the recently renegotiated USMCA trade agreement using quotas that prefer Canadian producers. While the Canadian government claims that the country is in full compliance with trade agreements, concerns of U.S. dairy market access have been noted in the past and maintain support by many congress members. If implemented as negotiated, the USMCA agreement is expected to increase U.S. dairy exports by more than $314 million a year.3

    La Niña Is Disrupting Agriculture with Cool, Dry Weather

    The natural weather phenomenon La Niña is continuing to affect U.S. agriculture due to cooler than usual weather and lower levels of rainfall. The phenomenon is known for particularly volatile weather patterns, resulting in volatile markets in the agriculture industry. In 2010 and 2011, La Niña was the cause of food prices reaching record highs as supply and harvest dropped heavily due to weather.4

    Rallies in Food Prices Raise Demand for Potash

    U.S. 2020 farm income is expected to rise 43% above 2019 levels due to crop price surges and government aid. Fertilizer producers are next in line to benefit from the industry's success as farmers reinvest in their farms and plant more acres going into 2021. Since September, potash, a potassium input to fertilizer, prices have increased over 25% as demand for the fertilizer swelled in 2020. Potash averaged $230 per ton at the end of 2020, increasing from sub $200 prices in Q3. Potash is expected to rise to the mid-$ 200's through early 2021.5

    Increased Competition for Food Sellers During Pandemic

    Consumers eating at home more due to the pandemic has been a net positive for large food sellers. However, sales growth slowed in the last quarter of 2020. Grocery stores bolstered their inventory to handle increased winter demands and potential consumer stockpiles due to new pandemic uncertainties. For example, Kroger has increased its distribution capabilities by nearly 20% to ensure maximum efficiency in the event of another shortage.6

    McCormick Acquires Cholula for $800 Million

    As of November 24, McCormick announced its acquisition of hot-sauce maker Cholula from private equity firm L Catterton for $800 million. McCormick is traditionally known for its variety of spices, seasonings, and other flavorings. After purchasing condiment brands, French's Mustard and Frank's RedHot in 2017, the acquisition of Cholula displays another step in the company's expansion into the condiment industry.7

    New U.S. Dietary Guidelines Reject Proposed Restrictions on Sugar and Alcohol Limits

    The U.S. Federal Government left current dietary guidelines for sugar and alcohol allowances unchanged in December. These dietary restrictions are issued every five years and influence school lunch programs which in turn impacts what food is produced. Beverage companies have heavily lobbied against tightening restrictions on these guidelines in the past year, with the American Beverage Association urging to maintain the "common sense approach taken by the USDA" regarding sugar consumption. The new guidelines proposed cutting the limit for added sugars from 10% to 6% of daily calories. 8

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • The Cholula Food Company Inc.
    • McCormick & Company, Incorporated
    • $800.00
    • FONA International, Inc.
    • McCormick & Company, Incorporated
    • $710.00
    • Crisco® Oils and Shortening Business of The J. M. Smucker Company
    • B&G Foods North America, Inc.; B&G Foods Canada, ULC
    • $550.00
    • Truco Enterprises, LP
    • Heron Holding Corporation
    • $480.00
    • The Organic Corporation B.V./Tradin Organics USA LLC
    • Amsterdam Commodities N.V.
    • $389.79
    • SweetWater Brewing Company, Inc.
    • Aphria Inc.
    • $366.00
    • Beverages & More, Inc.
    • GoBrands, Inc.
    • $350.00
    • Paul Masson Grande Amber Brandy Brand of Constellation Brands, Inc.
    • Sazerac Company, Inc.
    • $255.00
    • Certain Assets of its Dry Pasta and Noodles Business in USA
    • American Italian Pasta Company
    • $242.50
    • Silva International, Inc.
    • Universal Corporation
    • $170.00

     

    Source S&P Capital IQ as of 1/12/2021 and PCE Proprietary Data

    Additional Resources

    eBook- Keys to Selling Your Packaged Food & Beverage Company

    Contacts

    eBook- Keys to Selling Your Agriculture Business

     

    Michael Poole

    Michael Poole

    Orlando Office

    407-621-2112

    Contact Me Now
    David Jasmund

    David Jasmund

    Orlando Office

    407-621-2111

    Contact Me Now

    Data Assumptions

    This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

    Glossary

    EBIT - Earnings Before Interest and Taxes
    EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
    LTM - Last Twelve Months
    TEV - Total Enterprise Value

    Sources:

    1. "Agriculture Industry Bets on Carbon as a New Cash Crop," Jacob Bunge, WSJ, Dec. 23, 2020.
    2. "Biden Pick for USDA Throws Tom Vilsack Back into Food-Policy Fight," Jesse Newman, Jacob Bunge, WSJ, Dec. 11, 2020.
    3. "U.S. Says Canada Shields Its Dairy Market in Violation of Trade Pact," Yuka Hayashi, The Wall Street Journal, Dec. 9, 2020.
    4. "Weather-Upending La Niña Is Headache for Farmers World-Wide," Lucy Cramer, The Wall Street Journal, Dec. 4, 2020.
    5. "A Huge Rally in Food Prices Is Stoking Record Fertilizer Demand," Marcy Nicholson, Justina Vasquez, Bloomberg, Dec. 9, 2020.
    6. "Kroger Reports Strong, But Slowing, Sales Growth," Jaewon Kang, The Wall Street Journal, Dec. 3, 2020.
    7. "McCormick buys hot sauce maker Cholula for $800M,"Christopher Doering, FoodDive, Nov. 24, 2020.
    8. "New U.S. Dietary Guidelines Reject Recommendation to Cut Sugar, Alcohol Intake Limit," Andrea Petersen, The Wall Street Journal, Dec. 29, 2020.

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