In our house, there is some debate which is the better appliance – the slow cooker (i.e. “Crock-Pot®”) or our pressure cooker. Both ease the burden of preparation at mealtime, but which produces the better tasting food? The answer, of course, is it depends – both appliances have their place. In general, though, we regard the slow cooker’s inherent braising as the method of choice when flavor trumps speed of preparation.
We are reminded of this analogy when considering the current food and beverage M&A market. The first quarter of 2016 saw 70 closed transactions, down 19% year over year. Multiples, however, remain strong. It would appear that the slowing deal volumes have done nothing but whet the appetite of prospective buyers, indicating that the slowdown is supply (versus demand) driven.
Demand for growth via acquisition, combined with a continued lack of quality potential targets, low borrowing costs, and competition from non-strategic buyers (e.g. private equity), has multiples in many sub-sectors of the food and beverage industry at new highs.
How much longer this seller-favorable environment will continue is unknown, though it is difficult to imagine multiples will improve from current levels, at least materially.
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