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Overview

Baker Tilly Capital, LLC’s H2 2019 Specialty foods M&A Update provides an overview of the U.S. specialty foods market, industry trends and relevant transactions from July 1, 2019 to Dec. 31, 2019 (H2 2019).

The specialty foods market’s strong growth has led to the segment accounting for 16 percent of the total food market according to the Specialty Food Association (SFA), quickly approaching a point where it will comprise one fifth of the overall food market.  Health & wellness and “better-for-you” continue to be top of mind in consumer purchasing decisions and have provided considerable tailwinds for the recent surge in demand for plant-based foods.  At the SFA’s Winter Fancy Food Show in January 2020, David Lockwood, director of Mintel Consulting, stated that, “Next year 20 percent of the growth [of specialty foods] in terms of number of dollars will come from plant-based foods.”  Focus on overall wellness has also recently led to rising trends in functional products that support mental focus, relaxation and digestive health, so 2020 would expect to see more companies innovating in this space.  

Major food players have been entering the plant-based or meat-alternative space through both acquisitions (i.e. Maple Leaf Foods acquired Lightlife Foods, Inc. in 2017 and Unilever plc acquired The Vegetarian Butcher in 2018) and new product launches (Hormel Foods launched Happy Little Plants and Kellogg Co. launched the Incogmeato brand in September 2019).  Recently, outright acquisitions in the plant-based space have been somewhat limited as potential acquirers are likely waiting to see how the market plays out. There has been no shortage of capital going into the space, however, with many plant-based start-ups receiving significant funding from venture capital firms and food company-backed incubators.  The capital infusions are often a stepping-stone for future M&A, so acquisitions in the space are expected to increase in the next couple of years.  Below are select venture capital investments in plant-based space during H2 2019: 

  • Future Meat Technologies (Israel-based cultured meat start-up) raised $14 million in Series A funding, which will be used to build the world’s first cultured meat manufacturing facility
  • Tyson Ventures (venture capital arm of Tyson Foods, Inc.) invested in New Wave Foods, a manufacturer of plant-based shellfish
  • Mooala, a maker of organic, dairy-free beverages and creamers, secured $8.3 million in Series A funding led by Sweat Equities L.L.C.
  • Banda, a brand of chickpea-based pastas, raised $20 million in growth funding, led by Enlightened Hospitality Investments and Prelude Growth Partners
  • Nutriati, a plant-based ingredient developer, secured $12.7 million in Series C funding in a round led by Manna Tree Partners
  • Perfect Day, a producer of animal-free dairy proteins, raised $140 million in a Series C round led by Temasek, along with significant contributions from existing investors

One of the underlying drivers of the growth in plant-based products is increased focus on sustainability as companies in the space highlight the alleged environmental benefits of their products compared to traditional meat and dairy products.  Environmental, social, and governance (ESG) factors appear to be reaching a tipping point, as evidenced by the recent announcement by BlackRock founder and CEO Larry Fink who said BlackRock has committed to “place sustainability at the center of [its] investment approach.”  It is likely that these trends will impact the food industry in 2020 and beyond, presenting meaningful opportunities for specialty foods companies.  According to a study released by Tastewise, a food intelligence start-up powered by artificial intelligence, 23 percent more consumers in the U.S. are prioritizing sustainable food choices compared to year ago. For the food industry, addressing sustainability initiatives include addressing potential impacts of food products, food production and packaging, as well as general food waste across the value chain. 

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Food and beverage M&A update: Q4 2019