Jump in venture-finance deals paves way for more food M&A – data

“A sustainable food system is critical to combat climate change and battling climate change has real momentum; it has political momentum, it has momentum with corporations. Alternative proteins and alternative agri-tech are the most well-known areas of investment into the sustainable food system.”

The largest venture-financing deals last year featured some notable players in food alternatives. Impossible Foods, the US meat-free business, raised $500m, while animal-free dairy start-up Perfect Day pocketed $350m.

NotCo, a plant-based meat and dairy supplier in Chile, bagged $350m, and Future Meat Technologies, a cultivated-protein start-up in Israel, secured $347m.

The knock-on effects of increasing venture capital in the wider food system will itself likely spur further M&A activity and, eventually, consolidation, van den Heuvel suggests.

“You have a venture-capital firm doing the first round and, after let’s say three years, another round. And then, after five or six years, it’s ready for private equity to do a first round and make the company larger, more international. And then maybe doing small add-ons,” he explained.

“And then, over time, it will go to another PE or an IPO or it will be sold to a corporate. A lot of corporates, the Unilevers and the Nestlés, will end up buying a lot of these start-ups when they are successful. But they are more risk-adverse than PE funds.”

In the corporate food universe, van den Heuvel said Covid-19 has pushed up valuations for food manufacturers selling into retail as lockdowns forced people to eat at home, but conversely, they “nosedived” in the foodservice sector.

Nevertheless, he added optimism some countries are moving from the pandemic phase of the Covid-19 virus to an endemic phase could see M&A activity could go off with a “bang” in the next quarter or so.

“2022 could really be a great year both in the number of deals and deal value,” van den Heuvel said, describing 2021 as “the year we learned to live with Covid-19”.

In meat substitutes, the value of deals more than tripled last year to $11bn, from $3.3bn in 2020. They were also up on the $3.5bn in 2019, according to GlobalData. The conventional meat sector was also very active in what van den Heuvel deems a “defensive” strategy. The value of deals in that category climbed to $52.5bn last year, compared to $42.4bn in 2020 and $29bn in 2019.

Van den Heuvel argued meat companies are having to increase competitiveness amid the growing prevalence of meat alternatives and, ultimately, consolidation.

That was an aspect in play last year, when Marfrig Global Foods upped its stake in Brazilian meat peer BRF. Another protein firm in Brazil was in on the act too, with JBS striking a deal for pork processor Rivalea in Australia, and another by taking full control of Pilgrim’s Pride in the US.

“If you have an offensive trend, that always creates a defensive trend. And it’s driven by large- and medium-sized meat companies to increase economies of scale. That way, they’re going to keep their profitability levels healthy in the future.

“That’s driven on the one hand by the trend to meat alternatives but, on the other hand, they also have to deal with rising input costs,” he explained.

Heuvel added: “The general public, they’ve become more and more aware and active in viewing meat as a major source of climate change and that’s going to impact demand for animal proteins and those things always drive consolidation trends.”

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