The New Deal Environment: Guidelines for the Next Round of Beverages M&A
Deal flow in the beverage space has only begun to slow. But we don’t expect the next round of deals to look like the last – nor do we think they should. In this note, we talk about all the deal variables that have changed and how those changes will impact the M&A environment.
We believe valuations will have to come down and that buyers need to be patient until the market undergoes a reset. In a market where it is harder to depend on strong consumer growth, deals should be focused on scale, efficiency, and risk reduction where possible.
Now is a good time for further consolidation in some of the more fragmented segments of the beverage market. Both beer and soft drink distribution are logical places for continuing strong deal flow, and we identify an opportunity for increased M&A activity/consolidation in the beverage co-manufacturing space. For all these potential deals, building scale should be done not just to cut costs but also to grow relevance with key partners in the value chain.
De-risking should be a top concern for beverage companies as well. Beverage companies should explore nearshoring and “friend-shoring,” and we would encourage a renewed look at vertical integration in cases where it is relevant. Despite being through the worst of the supply chain disruptions, the threat of a return of trade wars and/or rising energy costs is real, and as such, we believe this remains a key area for beverage companies to address for long-term stability.
We still believe there is room for typical growth acquisition from a market leader aimed at filling white space in their portfolio. But in this context of higher cost of capital and lower visibility into consumer behavior, deals should focus on brands with more proven track records. We see the energy drink segment in the US as potentially one of these categories.
Even if the pace of deals shows a real decline, now is the time to prepare for the next wave of M&A. This can mean lining up targets, getting finances in order, and, most importantly, identifying the biggest long-term trends that you need to lay the groundwork for right now.
