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Why More PE Firms are Investing in the Food and Beverage Industry

3 Min Read

What we eat and drink plays a major role in our day-to-day lives and overall health. The food and beverage industry consists of companies that produce, package and distribute the products we consume. By 2027, the food and beverage market is expected to grow to $9.2 billion with a compound annual growth rate (CAGR) of 6.3%. 

An increasing number of private equity firms are indicating interest in investing in the food and beverage industry. Plus, consumers continue to indicate increased attention to their diets, with at least 70% of them desiring to be healthier. For about 50% of these consumers, food is an essential part of achieving that goal. Private equity firms investing in the food and beverage industry can make profitable returns by leveraging consumer trends, industry research and relevant advisors.

#1: Rising Consumer Demand for Health and Wellness Products

The COVID-19 pandemic increased public consciousness about health, including food and beverage products. Half of surveyed consumers say the pandemic changed their eating habits. One in six people reported making major changes to their diets, with younger people more likely to make shifts—such as buying from new brands or eating fewer animal products. 

Since the pandemic, consumers report: 

  • Eating fresher foods (40%) 
  • Avoiding foods with artificial ingredients (33%) 
  • Cooking more at home (40%) 

These trends present an opportunity in the global health and wellness food market. Companies can offer health-conscious food and beverage products to cater to new consumer demands.

#2: Regulatory Pressure Fuels the Specialty Chemicals Industry

Many firms are focusing on a specific sector of the food and beverage market: the specialty chemicals industry. A variety of unique compounds and additives can enhance the safety and nutritional value of foods and beverages. In turn, these chemicals play a critical role in many health and wellness products. 

Companies in the specialty chemicals industry must adhere to regulations from the FDA, USDA and other oversight agencies. This requires dedicating enough resources to conduct in-depth research of new compounds or additives, test their efficacy and make sure they are safe to consume. Without proper resources, companies can face a variety of liability and financial risks. The returns can be impressive for companies who are able to meet these strict guidelines.

#3: Industry Offers Upper Hand to Strategic Buyers

Private equity firms with a strategic lens have the advantage in the food and beverage industry. This includes current food and beverage investors with existing industry knowledge. In the first half of 2023, strategic buyers won deals in 74% of transactions, outnumbering financial and undisclosed buyer types. 

Developing a strategic vision takes time, resources and expertise. The first step is finding highly-relevant executives to effectively learn the industry, sector and target company. After sourcing these advisors, nurture these relationships over time for continued success. Drawing on existing connections can pay dividends in future deals. When you partner with Apex Leaders, you receive ungated access to your advisors to grow your relationships.

#4: Positive Outlook for Food and Beverage Industry

Given its growth trajectory, private equity food and beverage investments are stable options for firms looking to maintain profits amid economic uncertainty. Given its significant food and beverage M&A activity, the market remains strong with more deals closed in the first half of 2023 compared to the second half of 2022. Although deal values decreased during that time, there was an 8% increase in the number of closed transactions

Branded packaged goods account for the majority of recent food and beverage M&A activity, making up 40% of transactions in the first half of 2023. Beverages follow at 27% of transactions. Choosing a sector in the food and beverage industry will depend on your firm’s existing expertise, connections and capacity or willingness to assume risk.

#5: Food and Beverage Offers Avenues to Diversify Your Portfolio

There are many sectors in the food and beverage industry, offering wide-ranging investment opportunities to diversify your portfolio. Diversifying your firm’s portfolio with food and beverage deals can mitigate risks amid market fluctuations. 

Sectors that perform the best include alcoholic beverages, snack foods, foods with health benefits, ingredients and nonalcoholic beverages, according to recent food and beverage M&A activity. Your firm should consider which sectors best suit your long-term investment strategy. 

Before becoming food and beverage investors, firms should consider: 

  • How does this merger or acquisition relate to a larger strategy? 
  • How can my firm create value for this company? 
  • How does my firm align with this sector? 
  • What is my exit strategy? 
  • How can this deal inform future deals? 

While these questions are beneficial to ask before pursuing any deal, they are especially important when considering an investment in a new industry. Consider partnering with a knowledge-providing firm, such as Apex Leaders, to conduct exhaustive food and beverage due diligence. Our team possesses substantial experience assisting clients in this space. 

Are You Investing in the Food and Beverage Industry Yet?

Is your firm considering investing in the food and beverage industry? Connect with Apex Leaders for high-quality advisors that you can keep in your network.