PRODUCE REPORT: M&A, Investment Activity and Key Trends in the Produce Industry

PRODUCE REPORT: M&A, Investment Activity and Key Trends in the Produce Industry

SDR’s Fall 2018 Produce Report
explores key trends and includes a performance analysis of produce-related public companies
as well as a data-driven analysis of private and public company M&A transactions,
deal multiples and private placement activity over the past several years.

The full report is available for download here.


As produce industry participants prepare to showcase their latest innovations and newest products at the PMA Fresh Summit in Orlando, we thought a quick update to our latest Produce Industry M&A Report was in order. For those that have read our earlier reports, you will know that the following pages of this report include a trend analysis of public companies participating in the produce industry and a data-driven analysis of M&A and private placement activity over the past several years. While this information is not intended to be all-inclusive, it is meant to offer a picture of key trends and activity in the industry that may be relevant to your business.

While the level of M&A activity may have slowed from earlier in the year, we believe the level of interest has not waned, as industry participants try to jockey their competitive positioning and aim to fill gaps in product lines, secure supply and access new markets. Furthermore, private equity groups (PEGs) that have developed an “investment thesis” around healthy eating trends continue to have strong interest in acquiring well-run businesses in both the produce industry and the broader fresh food industry. Typically, PEGs are looking for businesses with solid growth prospects, a strong management team and decent EBITDA margins. While there can always be buyers for almost any business at the right price, high multiples continue to be paid by both strategic companies and PEGs when the business is marketed through a competitive process.

In our inaugural Produce Report last year, we outlined the drivers below as the main strategies being deployed and the rationale for much of the M&A activity in the industry. These remain true today.

  • Diversify operations & expand product lines
  • Strengthen market leadership & supply reliability
  • Accelerate growth & gain access to innovation
  • Enter new regions and/or increase market penetration in existing markets
  • Vertically integrate
  • Enhance high-growth/margin segments

Trade Issues

With the NAFTA negotiations now completed, the industry can begin to remove one important variable creating uncertainty in the M&A marketplace, assuming the new USMCA is ratified by each of the three countries’ governments. On balance the industry seems satisfied with the terms reached. According to spokespeople from the Produce Coalition for NAFTA, the CPMA and other industry pundits, the USMCA doesn’t change much for fresh produce marketers. The controversial seasonal anti-dumping provision was not included as some industry participants, such as the Florida Fruit and Vegetable Association, had pushed for.

However, as outlined in our summer report, the trade issues with China, and their impact on the produce industry, remain a major concern. Impacts are being felt across multiple commodities including citrus, apples and grapes.

Food Safety

On the food safety front, Walmart recently announced that it intends to have all its suppliers of fresh, leafy greens using blockchain technology for rapid traceback in case there is another food illness outbreak. Walmart has been working with IBM to develop the supply chain system on a pilot basis and many industry participants expect these technologies will get applied to more produce categories going forward.

M&A and Capital Market Trends

In August, Campbell Soup Co announced its plans to sell its Campbell Fresh business unit, which includes Bolthouse Farms, Campbell Fresh Gourmet, its refrigerated soup business and its international business, to focus on its core CPG business in snack, meals and beverages in North America. Combined across each division, the Campbell Fresh business unit generates about $2.1 billion in annual sales. Activist shareholder Third Point LLC revealed earlier this year that it had accumulated more than 5% of the outstanding shares and recently initiated a proxy battle to replace the entire board. More recently, it was reported that Campbell’s was in discussions with former Campbell Fresh and Bolthouse Farms CEO, Jeff Dunn, along with a group of investors. Dunn led the sale of Bolthouse to Campbell’s in 2012 for approximately $1.5 billion. Now, according to a Wall Street Journal report, people familiar with the deal expect the sale for the entire Campbell Fresh business unit to trade at between $500 and $700 million, or between 0.24-0.33x revenue. The story behind the failed acquisition of Bolthouse and entry into the fresh food business is relatively well-known in the industry and one of the drivers behind Third Point’s activist agenda.

In other big food company M&A news, Danone is said to be considering a sale of Earthbound Farms for approximately $500 million. The business was acquired along with its acquisition of Whitewave Foods last year. Whitewave purchased Earthbound for approximately $600 million in 2014.

Since we began tracking M&A transactions in the produce industry, the median multiple has been 0.7x revenue and 7.2x EBITDA. The average multiples are slightly higher at 0.9x revenue and 6.9x EBITDA.

Average enterprise values for publicly traded produce companies have continued to rise over the last couple of years and now have an average current multiple of 22.9x EBITDA in spite of only an average 7.1% EBITDA margin. This is distorted to some degree by elevated multiples from companies like Village Farms that have entered the commercial cannabis industry and have seen huge spikes in their stock prices. For comparison purposes, private companies should use a discount to compare multiples with publicly traded industry peers, given the illiquidity of private company shares. We normally use a discount of 30%, and with this discount applied, the average EBITDA multiple is 16.1x, which is still quite strong.

The full report is available for download here.

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Jennifer Lawson

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