Embrace Change or Die: The Meaning behind the Surge in M&As
In December, Campbell Soup Company made public that it was acquiring snack maker Snyder’s-Lance for $5 billion. On the same day, Hershey announced it would purchase Amplify Snack Brands for $1.6 billion, the company’s largest acquisition to-date.
More recently, in January, Keurig Green Mountain publicized it would merge with Dr. Pepper Snapple Group under the new name Keurig Dr Pepper. The two beverage behemoths would have had about $11 billion in combined revenue last year. By the way, about a year prior to Keurig’s merger with DPSG, the company bought Bai Brands, maker of antioxidant beverages, for $1.7 billion.
Also in January, Nestle announced it would sell its confectionary business to Ferrero for $2.8 billion.
Why have there been so many deals in recent months? Each acquisition, of course, has a unique rationale.
For instance, Coke’s purchase of sparkling water maker Topo Chico will help the company compete against the highly popular LaCroix brand, and Campbell Soup’s acquisition of Snyder’s-Lance reflects the company’s anticipation of falling sales in its traditional center-aisle categories as well as its recognition of the millennial-led snacking trend.
Then there are more general explanations for the high amount of M&A activity we’ve seen.
Consider the widespread financial slump felt among major food and beverage manufacturers lately. Across the industry, sales have slowed. In fact, the 10 largest U.S. packaged food companies have experienced an evaporation of sales totaling $17 billion over the last three years. Moreover, industry-wide shareholder values are hurting. In 2017, Campbell’s shares decreased 18%, Kellogg’s slumped 11%, and Kraft Heinz dropped 9%.
This widespread struggle in the industry originates from a number of factors, including consumers’ changing preferences (such as their demanding more natural products), the grocery industry’s price wars (which prompt retailers to invest more in private label), Walmart’s increasingly tough policies with suppliers, and Amazon’s entry into grocery retail.
In response to these conditions, many companies have looked to mergers and acquisitions to tap into hot trends, benefit from economies of scale, and gain innovations in their operations, marketing, and products.
Coke’s relatively new CEO, James Quincey, told CNN, “What’s got us to 130 years of success is not going to take us on the next 130 years.” Quincey’s mentality of embracing change demonstrates the major guiding force behind the recent surge in M&As seen in the industry today: Keep changing or fall behind – or worse, fall out of the game completely.