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The macro trends fuelling industry’s mega deals

The world’s biggest food and ingredients companies are keen to tap into the industry’s latest trends, and many are opting to do so through partnerships, rather than starting from scratch in their own R&D departments.

Advantages to partnerships include capitalising on existing expertise, leveraging access to a particular geographical or specialist market, and the ability to respond to a wider range of consumer trends. In an increasingly fast-paced industry, open innovation and collaborating on key projects gradually are becoming the new status quo.

Consolidation is on the rise, as evidenced by big ticket mergers and acquisitions, such as International Flavors & Fragrances’ recently announced $26.2 billion purchase of DuPont’s Nutrition & Biosciences business, slated for completion in early 2021. The deal follows IFF’s 2018 acquisition of Frutarom, which extended its reach into enzymes, natural colours and antioxidants, among other ingredients. Similarly, Swiss flavour giant Givaudan agreed to acquire French plant-based ingredient maker Naturex in 2018.

Fast-moving consumer trends provide the background for such mega deals, including demand for plant-based, clean label ingredients, naturally sourced flavours and colours, sugar reduction, gut health and generally healthier packaged foods and drinks. The combination of demands on ingredient suppliers now are so wide-ranging that it makes sense to pool resources, creating a one-stop-shop for food manufacturers in the process. As IFF said in a statement announcing its DuPont deal, it expects to make cost savings of about $300 million within the partnership’s first three years.

Another major driver for industry partnerships is specialised suppliers looking to branch out to reflect expanding preferences. The dairy and meat industries are prime examples, with companies like Tyson Foods – the United States’ largest meat producer – rebranding as a protein company and investing in meat alternatives companies like Beyond Meat. In 2017, the Canadian packaged meat company Maple Leaf Foods paid $140 million for plant proteins specialist Lightlife Foods, and in late 2018, CPG giant Unilever acquired Dutch company The Vegetarian Butcher for an undisclosed amount.

Similarly, the global dairy industry is seeking to invest in plant-based alternatives, with deals including Danone’s acquisition of the Alpro brand in its $12.5 billion WhiteWave Foods purchase in 2017. It is unlikely that alternatives to meat and dairy will eclipse the real things any time soon, but investing in ingredients and products that are in direct competition with their core business allows companies to offset the risk that these present.

The food industry is undergoing major change, with smaller companies emerging at the forefront of new technological and product development, whereas in the past a handful of big names had dominated supermarket shelves. For existing larger companies, mergers and acquisitions often represent a more efficient way to keep up with current trends than aiming to develop competing technologies in-house.