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COVID-19, Reports by Industry

Food & Agribusiness // M&A Activity & Opportunities — Virtual Roundtable


In partnership with: 

In this week’s virtual roundtable, Axial and Ouabache Investments co-hosted ten deal professionals in the food and agriculture space for a discussion around how the industry and its end markets are fairing in today’s environment. Topics of conversation included operational challenges, commodity prices, short- and long-term trends, and M&A activity, among others.   

Thank you to below deal professionals who participated in the discussion: 



Show Notes 

Introductions 00:00 – 15:00

Commodity Pricing 15:00

  • Commodity prices in both the core business as well as specialty crops are a real concern
  • You’re selling into grocery retail then your business is probably through the roof, but if you’re selling on premise, then you’re probably struggling
  • What is the new norm going to look like? It’s very difficult to forecast for the next 3-12 months without understand
  • The planning season is happening right now
  • There could be a backup of corn later this year, which could push prices even lower
  • China is the biggest buyer of soybeans globally, and when they stop buying, farmers put soybeans into storage
  • China has to feed its livestock, so they will likely have to keep buying

Vertical integration & pricing 19:45

  • Weaver popcorn is #2 yellow corn
  • The volatility in the corn market is real and it’s being talked about with both growers and customers
  • COVID-related expenses are the main concern right now — keeping social distancing, keeping up with demand
  • They may need to take prices up to cover these new manufacturing costs
  • Fresh produce is holding up well
  • McKinsey study showed that there are certain commodities that are benefiting from “pantry loading” though the demand is expected to turn abc to normal soon
  • There is expected to be a continued trend towards healthy eating
  • One business who had their pasta sales increased 40% year-over-year
  • WSJ reported that Campbell’s Soup shelf-stable products have record demand 
  • During the peak of the pandemic, there was a huge jump in foods that were out of stockton shelves because of pantry loading
  • Sliced Apple Business: The retail side of things is doing very well, but the food service side of the business is doing very poorly because of schools being shut down
  • There is a change in packaging; for a while we were shifting towards less and less packaging, and that has immediately rewound because of COVID
  • Companies that have been able to adapt to being seen as a “safe” food are doing well
  • Sustainability is taking a backseat right now and it’s all about sterilization 
  • Plastic drinkware company that is focused on recycled 

Sustainability of today’s trends 26:25

  • Ultimately, the consumer will speak on this, but right now the businesses need to react quickly to stay afloat
  • If a vaccine is created, a lot of this behavior will likely go out the window and consumers will return to a lot of the same practices
  • There may be a lag in bouncing back because certain demographics will take longer than others
  • There will likely be pushback on large trade shows & conventions that many businesses attend and this may hurt SMEs
  • From the sourcing standpoint, supply chain decisions have to change, and that has to be a permanent change
  • For a food processing business that focuses mainly on garlic products, they need to diversify because China is the largest producer of garlic
  • If you can diversify suppliers to include South America, Central America, and Europe (in addition to China), your business is in a much better position — not only does geographic diversification protect you, but you can also benefit from different crop seasons
  • When it comes to production, there are a lot of trends (and costs) that will almost certainly be shorter term (ie: splitting/adding shifts to allow for social distancing, providing transportation to those that could not take public transit, PPE)
  • Packaging changes will likely be here to stay
  • A business that designs interiors for restaurants/hospitality: 41 North hesitated launching the deal, but they found the story was actually better, because these end markets need to redesign layouts for safety — is this going to be a long-term play for restaurants though, if there is a vaccine? There is a theory that this will last for about 24 months 
  • For 90% of the population, cost is always going to be a factor, and at the end of the day, all of these “trends” are likely going to drive costs up
  • As more businesses (ie: Perdue) come up with direct-to-consumer strategies, that will probably be something that consumers are willing to pay up for because of the convenience of having things like produce, meat, etc. shipped directly to your home
  • There are a lot of fruit boxes that are being delivered to people’s homes right now

The healthy food trend 39:01

  • Right now everyone is eating at home, and it is easier to eat healthy at home
  • Beef and dairy products will likely continue to decline based on data & anecdotal information
  • This trend is segmented more toward middle/upper-middle class demographics
  • In California, this is extremely prevalent and the supply-chain supports this 
  • In addition to “health” foods, things like non-GMO, Kosher and Halal have also picked up a lot of steam
  • Nut growers are looking for a continued advancement to plant-based proteins
  • When we look at COVID data in the future, there will likely be a correlation between people’s health and the pandemic
  • There is also the COVID baking trend, so that may steer in a bit of a different direction

Regenerative agriculture 46:00

  • Results in greater productivity
  • Allows farmers to use farm waste to generate power
  • Prior to this pandemic, farmers were very resistant to change their methods at all

M&A activity 49:00

  • Ouabache has found that this environment has been surprisingly good for buyers because of the uncertainty (sellers are a bit panicked and don’t know what the future holds for them, so they’re looking to move)
  • There are a lot of “me too” products out there, so it’s important to look at differentiation
  • Everyone seems to have lowered valuation expectations 
  • The big question: what is the adjustment to financials?
  • Most deals that have been run through a formal process are on hold (mainly due to diligence/in-person meetings), while those that are relationship driven are the ones that seem to be moving forward
  • In partner meetings, firms are still mainly talking about their portfolio companies
  • A lot of people are issuing term sheets on deals where they’ve never met management and are banking on the fact that they will be able to meet in person by closing (sometimes the deal is contingent upon that)
  • Will companies be penalized for adjustments they’ve been forced to make due to COVID? It sounds like the widespread answer here is that it’s totally situational.

Transaction structure & risk sharing 1:04:50

  • Forecasting is definitely something that is taking the forefront of transactions
  • Are existing risk sharing tools (earnouts, contingencies, etc.) sufficient to bridge the gap?
  • Trying to structure a deal can oftentimes put the buyer and seller at odds, and if it’s going to destroy a relationship, firms may choose not to go that route

Debt markets 1:09:19

  • Leverage has come down, cost is up
  • The need for good collateral is essential in today’s market
  • A lot of senior lenders are focused on things outside of new deals
  • The underwriting is tighter on any new deals that are taking place
  • Quote from a lender at last week’s debt roundtable: 1.5-2 fewer turns of leverage available and price is 200-300 basis points higher 

How investors are deploying capital 1:10:42

  • Does taking a smaller percentage of the business with all equity make sense now and then you can recap later? This would shift from a majority to a minority position
  • There is so much dry powder that ultimately needs to be deployed; are firms having conversations with their LPs about putting investment on hold?
  • There will likely be many extensions to get funds deployed, though LPs would rather discuss specifics further in the future

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