What We’re Discussing with Clients
COVID-19 Relief Package – Round 2: The Paycheck Protection Program originally established in the CARES Act was extended as part of the $900B stimulus bill passed in late December 2020. The relief package specifically includes more flexible eligibility requirements for companies that operate in the Accommodations and Foodservice sectors.1
Impact of the 2020 Election: After a memorable 2020 presidential election and Senate run-off in Georgia in early January 2021, Democrats now control both the White House and Congress.2 President Biden has already signed several executive orders early in his presidency, but will need broader support to pass potential regulatory and tax policy legislation proposed during his campaign. We expect his first 100 days in office to signal his top priorities in 2021.
Importance of Planning: Over the past year, many companies have taken an active approach to review their business units and subsidiaries to identify non-core or underperforming operations. If your company is contemplating a divestiture, it is critical to start preparing six to 12 months before the launch of a formal M&A process to maximize value in a transaction as many business areas cannot be addressed with “running fixes” while a transaction is in process.
Strong Finish to 2020
- Global Food & Beverage M&A deal volume rose for the second consecutive quarter and reached a two-year high in Q4-20 as total deals increased ~5% compared to Q4-19. Importantly, the 551 total deals was ~21% higher compared to Q3-20, demonstrating an increased appetite for M&A heading into 2021.
- U.S. Food & Beverage M&A deal volumes are also showing tremendous resiliency despite the uncertain economic environment, particularly in foodservice. While transaction activity fell compared to Q4-19, deal volumes increased ~10% vs. Q3-20 and ~44% since the peak of the pandemic in Q2-20. Many sectors have starting to return to pre-crisis levels as companies leverage healthier balance sheets to explore M&A opportunities.
- Despite the strong momentum over the past several quarters, both Global and U.S. Food & Beverage M&A deal volume fell in 2020. Global Food & Beverage decreased ~11% (2,113 deals to 1,890 deals) while U.S. Food & Beverage decreased ~14% (693 deals to 594 deals), respectively.
- However, those recent trends suggest 2021 will be a strong year for Food & Beverage M&A. In addition to favorable Q3/Q4-2020 economic indicators, interest rates remain at historic lows, private equity firms have $2.8T in undeployed capital,3 and the Biden administration is pushing a $1.9T relief plan to further stimulate the economy.
1 NAICS codes starting with 72.
2 Although the Senate is split 50/50, any tie-breaking votes are cast by the Vice President.
3 Ernst & Young.
Source: S&P Capital IQ Data.