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M&A activity: What’s ahead

PBP MA cover

In the realm of fresh produce or the greater food industry—outside the Kroger-Albertsons deal—what does the future hold for merger and acquisition (M&A) activity? Will the pace quicken or slow due to inflation and other factors?

“I think the industry is still in review of the pre- and post-Covid trends,” says Elyse Lipman, CEO of Lipman Family Farms, BB #:110471 Immokalee, FL. “The cost of capital increasing slows things down as well.”

But, she adds, “We’re continuously engaged in and looking for opportunities that align well and add mutually successful and complementary value.”

Michael Erdman, president of the Howard Sheri Corporation in Deerfield, IL, an M&A intermediary, is cautiously optimistic. “While M&A activity overall was down in 2022 compared to 2020 and 2021, I expect the downward trend in the number of deals closed to slowly reverse course as motivated sellers begin to accept the reduced valuation-multiple environment.

“Everybody likes to say that food in general and fresh produce in particular are ‘recession proof.’ There’s obviously some truth to that,” he says.

“However, I think interest rates and the debt markets are the key variables driving food deal volume, meaning I don’t expect a return to 2020-21 M&A levels any time soon.”

Steve Grinstead, CEO of FreshEdge, takes a bullish view in the near term.

“I think the next year will be a record pace for M&As in the produce industry,” he predicts. “The lion’s share will be in the foodservice distribution sector, but there will be activity across the entire industry.”

He points to several factors driving this trend such as leaders nearing retirement age; others still dealing with the toll of the pandemic, which has created a group of worn-out owners who want to get out; and the need for constant reinvestment in software, technology, food safety, and other facets of a growing company.

On the other side, there’s significant interest from strategic buyers looking to grow their position in the food industry in general and fresh produce in particular, bringing attention—wanted or not—from private equity investors.

Looking inward for growth?

One area Erdman is keeping an eye on is controlled environment agriculture or CEA.

Activity in this space since just the beginning of this year has included Pure Flavor acquiring Cervini Farms; Pipp Horticulture purchasing Grow Glide’s assets; Growy Holdings buying Kalera GmbH’s operations in Germany, Kuwait, and Singapore, allowing the latter to focus on its U.S. business; and Betterment Harvest making 50-percent investments in two Ontario greenhouse operations, JC Fresh Farms and Orangeline Farms.

These follow CEA deals in 2022 ranging from Local Bounti Corporation of Hamilton, MT acquiring Hollandia Produce Group (operating under the name Pete’s) for $122.5 million, creating one of the largest CEA operations in the United States, to Nature’s Miracle completing a business combination with private equity company Lakeshore Acquisition II Corp., followed by a listing on the Nasdaq exchange.

For the broader food and beverage industry, analyst Corporate Finance Associates predicts in its Winter 2023 M&A Report that excess capital in the private equity area will likely drive demand in 2023.

However, the market environment itself may tend to keep valuations down. The experts we talked to for this article, and most everyone in the industry, will be watching with interest.

This is an excerpt from the cover story in the July/August 2023 issue of Produce Blueprints Magazine. Click here to read the whole issue.