Beer Marketer's Insights - Despite Elephant in Room, Appetite for Food/Bev M&A Runs Deep, BMO Capital Bankers Assure; Trump's 'Liberation Day' Threw Markets a 'Knuckleball'

What's the outlook for M&A in food/bev? Trump administration's tariff lurches placed a very big elephant in the room for pair of experts convened by Food Institute this afternoon but demand for deals is solid, they assured, even if recent weeks' chaos may have paused activity. Things "are not static," said BMO Capital Markets managing dir John Siegler, who leads Food, Consumer & Retail Middle Market M&A there. There are "lots of deals in market, but it's becoming a timing issue." For companies addressing sizable market, with good margin profile and strong management team, the outlook remains encouraging, he stressed. "My view is it's more active than people realize," he said. "It's more about timing than interest . . . a fairly active market, particularly in the lower middle-market." On webcast, Siegler used baseball analogy to describe recent environment. Pre-pandemic era was a very aggressive "fastball environment" before advent of Covid left players more cautious, tho deals did get done. So that was "more curveball." Current environment? "A knuckleball market, totally unpredictable" thanks to havoc unleashed by administration starting with its "Liberation Day" tariff shock. In his presentation, Siegler was backstopped (to stick with baseball metaphor) by BMO managing dir Betsy Erdelyi, who's team leader of its Food, Consumer & Agribusiness Group.Siegler offered a bullish case driven by pent-up demand from buyers and sellers, both strategics looking to fight off private-label creep and to play in emerging segments and PE firms that have companies they need to sell and capital to deploy. They are "willing to listen and invest and be active in quality opportunities," he assured. Even in that bullish scenario, it's been hard to settle on pricing given current financial and economic chaos. During negotiations, both sides are "digging in their heels looking for proof points" of the valuations they're seeking. That's exacting delay on deals.The bearish case? Cue the elephant: the economic environment, tariffs and the general unpredictability in Washington, Siegler said, without naming names. Overlay that with consumer fickleness not tied to the tariff shock as they navigate shifting trends. That behavior shift has affected a lot of PE firms that do consumer investments, and some have actually exited that sector. But private equity "is amazingly resilient," they will "react to a market like this even if it's turbulent &hellip; be very creative in doing deals." Bottom line: even in bearish case, there will be "plenty of activity out there for well-run companies."Tho there's been broad perception that deal-making has been in sluggish zone, Siegler displayed data from last year to show that deal value was up, even if volume was down, and multiples stayed at healthy level. Most of the action was "more manageable' deals below $1 bil in so-called middle market, tho coupla large deals got done too.What was it like on lending side? "Very supportive," Erdelyi said. Syndicated loan volume rose 49% driven by 126% increase in leveraged loans supporting M&A activity. Q4 ended on a tear, up 78%. It reflected an optimistic view of economy. Last year, Siegler added, 75% of deals involved strategic buyers not financial buyers (PE firms). And almost 90% involved private cos not public ones.Still, there's no question that institutional lending "ground to a halt" post-Liberation Day, Erdelyi said. "That market does not like volatility." So things have been on pause in the 20 days since then, similarly to how they went on pause for 40 days when pandemic hit. "We have to get through this tariff situation, no question," she said.In course of presentation, Siegler emphasized broad range of deals and players. Strategics may be outsourcing their innovation challenges via acquisitions but they're also on the selling side, shedding assets deemed non-core any more. Then there are family offices, "new relationships" (we're not quite sure what he meant by that) and celebrities. "Lots of players out there."

Despite Elephant in Room, Appetite for Food/Bev M&A Runs Deep, BMO Capital Bankers Assure; Trump's 'Liberation Day' Threw Markets a 'Knuckleball'

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