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Big CPG could dust off divestitures as rates stabilize

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Illustration: Maura Losch/Axios

Major CPG conglomerates may dust off divestitures sitting on their shelves the past couple of years as interest rates stabilize, industry sources tell Axios.

Why it matters: Rising interest rates have heretofore choked the LBO market for private equity, the most likely acquirers of strategic asset sales.

Driving the news: Ken Moelis, CEO of the investment bank that carries his name, said at a Goldman Sachs conference earlier this month that the deal pipeline was at its highest level ever due to pent-up M&A.

Details: Among the deals that could be revived include Kraft Heinz's auction of Maxwell House, General Mills' sale of Progresso and Unilever's divestiture of its ice cream business, among others, sources say.

  • "Many investors have done a lot of work on Maxwell House and Progresso in the past but (the) valuation gap between buyer and seller was the obstacle," an industry banker says.
  • In that same vein, Diageo is revisiting a sale of its beer brands, sources have previously told Axios.

Yes, but: Unilever — which announced the sale of its Elida beauty business to Yellow Wood Partners this morning (read below) — may decide to hold onto its ice cream brands, a second industry banker cautions.

  • That portfolio, which includes Ben & Jerry's and Magnum, has synergies with its recent acquisition of frozen Greek yogurt brand Yasso, the banker says.

Catch up fast: Unilever sold Dollar Shave Club to Nexus Capital Management in October.

What they're saying: Solomon Partners managing director John LeVert tells Axios he expects a more active 2024 for food and beverage carveouts, based on his recent conversations with clients.

  • "Interest rates plateauing and likely declining in 2024 means the cost of capital comes down," LeVert says, adding that it should embolden some buyers.

Reality check: Large cap food and beverage companies have underperformed indices year-to-date in 2023, as they've missed sales estimates and provided mixed outlooks, he says.

  • Organic growth in particular has been challenged, LeVert notes, pointing out that sales have been boosted by price, not volume.
  • "I expect that this will continue as consumers look to stretch dollars and selectively trade down," he says.

Zoom in: To combat that, strategics will reduce the size of products, effectively raising prices, while also introducing innovation or new versions of products, LeVert says.

Meanwhile: On the retail side of the equation, Neiman Marcus, Macy's and Boots could all be potentially up for grabs in Q1, per reports.

The bottom line: "Investment banking is not linear, it's dynamic," a third industry banker says, acknowledging these processes can sometimes take years.

Unilever declined to comment. Kraft Heinz and General Mills did not respond to a request for comment.

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