Valuations rising as food & beverage whets PE's appetite

As a relatively low-margin, stalwart sector for PE investment that is exposed to both consumer and industrial trends, food & beverages (F&B) was until recently one of the few market segments still seeing average entry multiples in the single digits. Looking at multiples over the 12 months to Q2 2020, the average entry multiple for PE buyouts in the sector stood at 9.4x EBITDA, when industrials & chemicals and support services businesses, for instance, were commanding average multiples of 10.1x and 10.3x respectively.

Fast forward a year and the average pricing for buyouts in the F&B space has increased by 2.2 turns of EBITDA to reach 11.7x in the 12 months to Q2 2021. The pace of increase has been faster than that seen for the average valuation of European PE buyouts across all sectors, which went up by 1.4x in the same timeframe. Sectors that have attracted a lot of hype, such as TMT and business services, have actually seen more modest increases in average valuations over the past year than F&B.

It is worth noting that while it does not generate a consistently high volume of dealflow, European PE players have always been attracted to the space. It has traditionally been seen as a relatively defensive sector, where GPs were able to source stable assets at attractive multiples and look to implement a number of value creation strategies ranging from professionalising smaller, family-owned businesses, to exploiting consolidation opportunities for more mature assets.

But the sector has also benefited from more recent trends, including some that were significantly accelerated during the pandemic, explains Clearwater's head of F&B, John Sheridan. He specifically cites a renewed focus on health considerations; the fact that consumer spending has shifted from hospitality to cooking and eating at home due to lockdowns; and the accelerated uptake of digitalisation and e-commerce, resulting in a shift to direct-to-consumer channels.

"People are much more focused on healthy living, environmental responsibility, veganism, and natural ingredients," Sheridan says. "But the trend of digital transformation, e-commerce, home delivery, and a shift to the direct-to-consumer models is more specific to the pandemic and has also allowed some assets in the sector to really benefit and stand out."

As a result, dealflow in the F&B space has rebounded noticeably in recent months. The 75 deals recorded in Europe in the 12 months to June 2021, while not eye-catching compared to other, busier sectors, was up by 103% year-on-year in volume terms, according to Clearwater and Unquote data. "The number of PE players investing in this space is increasing," Sheridan notes. "In the UK, there was a decrease of around 40% in deals in the F&B space when the pandemic hit, but it has rebounded strongly."

There is a certain amount of dispersion within the multiples seen in the space, though. Premium multiples are attracted by niche B2B players, notably those that produce speciality ingredients, says Clearwater managing partner Philippe Guézenec. PE-owned F&B targets also tend to command heftier valuations, as they have generally been well optimised by their current PE owners and are thus considered particularly low-risk by both trade and PE suitors.

The secondary buyout of Solina Group, announced in May, neatly illustrates both trends. Astorg entered exclusive negotiations to acquire the France-based manufacturer of ingredients and seasoning blends for the food industry from Ardian in a deal reportedly valued at €1.7bn. Solina generated EBITDA of €88m in 2020, according to Moody's.

The SBO of Valeo Foods, which owns a broad range of consumer staples such as biscuits maker Jacobs and honey producer Rowse, fetched a more modest multiple when Bain bought it from CapVest earlier this year; while the EV – in excess of €1.7bn – was comparable to Solina's, it equated to 10x Valeo's €170m EBITDA.

PE holding its own
One thing is for sure: on the buy-side, PE has not been bullied by well-funded strategics hungry for acquisitions. When Exponent bought UK-based chilled desserts producer Gü from Noble Foods in May, for instance, the GP reportedly saw off competition from the likes of Nestlé, Müller and Yoplait. "Trade buyers sometimes expect a higher return than PE, even if they have synergies, but PE buyers are often ready to accept lower returns than they might have expected in the past on mid-sized to large deals," says Guézenec.

This extends to sponsors backing their portfolio companies in pursuing consolidation plays. "The best type of buyer for F&B assets at the moment is a PE-backed trade player," says Sheridan. "This extracts the synergies, but then you have the discipline of negotiating with PE people motivated to pursue a buy-and-build strategy. It's also not just about the highest price, but also about closing the transaction fastest."

Looking ahead, the prospects for potential vendors in the sector remain strong. "A number of family-owned companies or groups selling subsidiaries are encouraged by multiples being high, and PE clearly taking a keen interest in a relatively defensive sector," says Guézenec, adding that the sector will soon benefit from an influx of new prospects. "The industry is so resilient and innovative, with many exciting startups in the sector – these could be potential targets for buyers in the coming years."

This article is an extract from the latest Clearwater International Multiples Heatmap report, which can be downloaded here

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