By Praveen Paramasivam
(Reuters) - Niche U.S. packaged-food brands facing a funding crunch are emerging as attractive targets for bigger players such as Kraft Heinz (NASDAQ:KHC) and Mondelez (NASDAQ:MDLZ), which are looking to expand their product lineup in a highly competitive market.
Many early investors are tightening their purse strings due to rising interest rates and the economic impact of the pandemic, forcing several smaller companies to consider M&A as the next viable step.
"Smaller companies (are) wanting to shore up their balance sheets given the challenging inflation dynamics, so they are looking to partner for safety," said Charles Coristine, chief executive of popcorn and mini cookies maker LesserEvil.
Pet food brand PetPlate told Reuters that it received more calls from bankers regarding potential takeover offers so far this year than it did in the whole of 2021.
"We get approached about once per week from an investment bank representing the strategics, and that's compared to once a quarter last year," PetPlate CEO Gertrude Allen said.
Canadian plant-based foods maker Above Food said based on current trends, it was expecting to field more calls about a possible takeover this year than it did a year earlier.
Deal-making in the U.S. food and beverage sector jumped 18% in the first three months of the year, according to data firm CB Insights, despite 2021 being a record year for mergers and acquisitions.
"Now that balance sheets have been restructured and valuations have come down across the market, we could see larger packaged food companies pursue more bolt-on acquisitions or even large-scale acquisitions," CFRA Research equity analyst Arun Sundaram said.
Earlier this week, Toblerone maker Mondelez said it would spend $1.3 billion for Mexican breadmaker Grupo Bimbo's confectionery business, Ricolino, its second billion-dollar deal this year.
Meanwhile, Hershey, which acquired Lily's and Dot's Pretzels last year for $1.2 billion, told Reuters that M&A would continue to play an important role.
"The largest food companies in the world today really need to continue to reinvent themselves. And probably one of the best ways to do that is through M&A," Farmer's Dog CEO Jonathan Yoni Regev said.