Nixon Peabody’s Hot Topics in the Middle-Market series welcomed a panel discussion featuring insights from experts in the food and beverage industry to shed light on the state of the market—including the challenges and opportunities faced by various sectors—and offer valuable projections into what lies ahead. The panel featured Joe Faro of Tuscan Brands, Matthew Finnerty of CREO Capital Partners, Helana Robbins Huddleston of CohnReznick, Rhonda Kallman of Boston Harbor Distillery, Robert Schmidt of Bridgepoint Investment Banking, and Alberto Sinesi of PKF Investment Banking and was moderated by Nixon Peabody corporate partner Phil Taub, and counsel Shaziah Singh.
Current Key Market Concerns
The panelists began their discussion with a focus on broader market challenges that have afflicted the food and beverage industry over the last 12+ months, such as inflation, the spike in interest rates, and consistently elevated inventory, labor, and operational costs. Many of these contributing factors have had a profound impact on restaurants and small producers attempting to navigate a dynamic and rapidly evolving landscape, making both relevance and profitability more difficult to maintain. For those restaurants and producers considering M&A activity, the panelists stressed the importance of accurate earnings assessment and valuation in the face of changing market dynamics.
Dealmaking Landscape
Despite a slowdown in transaction activity in 2023, actual capital invested remained the same compared to prior years, as private equity investors remain eager to deploy capital. Our panel expects this eagerness to bolster interest in strategic acquisitions and debt refinancing opportunities. An influx in strategic acquisitions over sponsor-led deals has been a hallmark of 2024 to date, driven by portfolio-optimization strategies among large corporations (including landmark deals by major industry players looking for vertical integration solutions). Manufacturing strategies and customer concentration considerations remain relevant as acquirors look to optimize capacity and drive cost savings.
The growth of the private credit market and its impact on deal financing in the food and beverage space over the past year has increased competition among lenders—innovative financing structures tailored to support specific growth initiatives are increasingly popular. The panelists discussed the benefits of private credit in providing flexible financing options that support businesses through various stages of growth. Private credit has presented emerging opportunities—particularly among family-owned and founder-led businesses—as a source of capital for businesses seeking to expand or refinance existing debt, particularly in the current environment of rising interest rates and tightening credit markets.
Industry Trends
The panelists shared their insights on industry themes developing in 2024. There has been a resurgence of interest from investors in family-owned and founder-led businesses, particularly quick-service and casual dining establishments. The industry is also seeing a growing demand for premiumization, ethnic foods, and foods and beverages with health and functional benefits (particularly in the ever-growing non-alcoholic beverage category). The role of branding and product differentiation has been a key focus in building a competitive advantage in the market.
The discussion concluded with insights into strategic considerations for businesses navigating the changing food and beverage landscape. The panelists emphasized the importance of innovation and adaptability in responding to changing consumer preferences and market dynamics and agreed on the need for businesses to stay agile and resilient amidst ongoing challenges. Market participants should be prepared to leverage all available resources and expertise to capitalize on emerging opportunities. Overall, there is a consensus of optimism for the food and beverage market (and accompanying M&A opportunities) in 2024, as we continue to see resilience and innovation demonstrated among industry stakeholders in overcoming current industry challenges.
