Key factors expected to attract future global investment 7 min read
2021 was a record-breaking year for M&A transactions in Australia across almost all markets, and despite major disruptions caused by the pandemic and international supply shortages, deals within the food and beverage sector remained plentiful.
With ESG front of mind, we take a deep dive into some of the M&A trends within the food and beverage sector and outline some key factors that we expect will attract global investment in the years to come.
- 2021 was a record year for M&A deals in Australia and the food and beverage sector played a key role despite international disruption.
- A target's ESG-related risks, opportunities and practices continue to be a keen area of focus for potential bidders, especially within the food and beverage sector.
- Australian craft breweries and companies specialising in innovative agriculture continue to attract interest from foreign bidders.
Legal counsel; strategic management
2021 was a record-breaking year for M&A deals in Australia and that momentum certainly continued into 2022, including due to low funding costs, increased deal making demand after the pandemic and a strong economic rebound. Allens has been involved in some of Australia's largest and most complex M&A deals in the first half of 2022 – read more here. Whilst activity levels will likely moderate over the remainder of the year as the market adjusts to higher interest rates and global inflationary pressures, we expect the Australasian M&A market will continue to perform strongly relative to global markets.
The food and beverage sector was also in the crosshairs for M&A in 2021
Headlined by the A$9.65 billion acquisition of ASX listed Coca-Cola Amatil (ASX:CCL) by Coca-Cola Europacific Partners creating the world's largest Coca-Cola bottler, the sector saw immense growth across a variety of industries. Despite Russia's invasion of Ukraine hindering global grain and agricultural markets, we expect investment within the food and beverage sector to continue due to several growth opportunities, including the introduction of new free trade agreements between Australia and various countries, government and regulatory interest and investment in the sector (for example, the new ASX agribusiness index) and further easing of global pandemic related travel and employment restrictions.
A target's environmental, social and governance (ESG) credentials continue to be an important consideration for M&A transactions around the globe, as investors gain a greater appreciation for how robust ESG practices can create and drive sustainable value. In 2021, it is reported that global M&A transactions involving sustainable companies more than tripled 2020 levels. Broad ESG themes relevant for companies include climate-related risks, transparency of supply chains and ethical sourcing, animal welfare, as well as broader issues including social inequality and biodiversity.
International and private capital investors in particular have quoted ESG as a major driver in food and beverage related M&A deals. Allens recently advised an Equilibrium Capital led consortium on their strategic investment in Perfection Fresh, one of Australia's largest privately owned fresh produce businesses. The consortium understood that as the impact of climate change strengthens, consumers are demanding that agriculture companies shift away from reliance on land-based industry, where produce is too heavily weather and season dependant. Perfection Fresh's intentions to grow its controlled environmental agriculture into Asia (which reportedly produces 70% of the world's total vegetable production) was an important consideration in the consortium's investment. With this new strategic partnership by its side, Perfection Fresh recently acquired sustainable banana business, Pacific Coast Produce Marketing, another ESG-conscious acquisition. Perfection Fresh CEO Michael Simonetta stated the acquisition was innovation driven and 'very much in line with [their] sustainability approach'.
ESG stakeholder activism is also impacting M&A deals within the sector. For example, when JBS Australia sought to acquire Australia's second largest salmon producer, Huon Aquaculture, by way of scheme of arrangement, Tattarang (which at that stage held an 18% interest in Huon) publicly stated that it would vote against the scheme unless JBS 'declare[d] its unequivocal commitment to animal welfare and environmental sustainability'. Given the voting thresholds required to approve a scheme of arrangement (which includes 75% of the votes cast), Tattarang's opposition to the scheme put pressure on JBS Australia to launch a parallel off market takeover bid with a 50.1% minimum acceptance condition, circumventing the need for Tattarang's approval of the transaction.
ESG considerations are also relevant to regulatory bodies when assessing the character of foreign bidders. In the above JBS/Huon deal, Tattarang publicly urged the Foreign Investment Review Board (FIRB) to closely examine JBS, citing bribery and corruption concerns and alleged animal mistreatment. The same issues were also relevant for FIRB when JBS recently acquired integrated pork producers Rivalea Holdings Pty Ltd and Oxdale Dairy Enterprise Pty Ltd. We are also aware that FIRB has imposed ESG-related compliance conditions on foreign bidders. However, such compliance conditions tend to be imposed on targets who have had incidents in the past, rather than pro-active conditions requiring wholesale changes to be made to an industry or asset.
It is expected that ESG will continue to drive and impact deals, including as investors become better equipped to benchmark ESG performance between companies worldwide.
Whilst M&A deals continued to surge in various food and beverage industries including dairy, fresh produce and ready-made meals – there are three particular subsectors that have continued to attract local and foreign investment and we expect will continue to do so in years to come.
For companies within the food and beverage sector
- We recommend ensuring your ESG practices are in line with stakeholder expectations and legal requirements. For example, ensuring your board oversees ESG-related matters, complying with ESG reporting requirements, putting in place appropriate training for employees, managing ESG risks within your supply chain, considering the ESG practices of business partners and contractual obligations that you may impose on those third parties, engaging clearly and often with stakeholders regarding ESG risks and opportunities and ensuring any public ESG claims are accurate and well-founded.
- Learn more about ESG strategies, establishing an appropriate ESG policy and how to embed ESG best practice into your business on the Allens ESG Hub.
- We recommend you undertake ESG-related due diligence on targets sitting within the food and beverage industry. For example, assessing the degree of alignment between the target and the bidder's ESG objectives, considering what value the target might bring to the bidder in terms of established ESG credentials and stakeholder sentiment towards the proposed target.
- In addition, undertaking due diligence regarding the target's climate-related risks, supply chains and ethical sourcing, animal rights risks, work health and safety risks and governance practices, as well as broader issues including social inequality and biodiversity.
- Learn more about ESG due diligence and things to consider with ESG-related investing on the Allens ESG Hub.