Axios Pro: Retail Deals

January 24, 2023

Axios Pro Exclusive Content

Happy Tuesday, Retail readers. Plenty of news today, so let's dive right in.

1 big thing: Buyers circle private labels

Illustration of a waiter holding a silver serving tray featuring a bag of groceries

Illustration: Sarah Grillo/Axios

Private label food sales grew in 2022 and are expected to do so again in 2023, which could lead to a smörgåsbord of M&A for dealmakers, according to a report by investment bank William Blair.

Why it matters: Bankers, strategic acquirers and PE firms, are hungry for transactions, Richard writes.

The big picture: While private label has experienced growth for years, inflation and the specter of an economic downturn is accelerating consumer adoption.

Details: A number of companies are hiring financial advisers to prepare for a sale when the timing is optimum, Chu-An Lee, William Blair's director of consumer and retail, tells Axios.

  • There's still fragmentation and an opportunity to consolidate, with plenty of cash to put to work.
  • Divestitures and PE investment, including the acquisition of minority stakes, will also be on the menu.

Between the lines: In addition to offering value, private label food products are viewed differently today than they were a decade or more ago, with many offerings now seen as equal or of a superior quality to their branded counterparts.

  • Grocery chains such as Trader Joe's and Aldi have led the way in changing shoppers' attitudes, Lee says.
  • Some of the conditions that led to lower M&A activity in 2022, such as price discovery and challenging capital markets, may be muted this year.
  • Private label manufacturers also worked through many of the supply chain hiccups during the depths of the pandemic, when they had a difficult time keeping store shelves stocked, Lee notes.

Yes, but: Private label food products have struggled to translate online, with Amazon scaling back its offerings last year, for example.

  • Online retail formats are not optimized for private label comparison, Lee explains.

Catch up fast: One of the headline transactions in 2022 was Treehouse Foods' sale of a large portion of its meal preparation business to Investindustrial for $950 million.

  • The enterprise value was a multiple of 13.6X the unit's adjusted EBITDA.
  • Other deals last year include Bain Capital-backed Dessert Holdings' acquisition of Dianne's Fine Desserts and AUA Private Equity Partners' sale of Trufood to Mubadala Capital.

State of play: Publicly-traded companies in the category in addition to Treehouse Foods include Post Holdings, which owns 8th Avenue Food & Provisions.

  • Post bought Treehouse Foods' private label cereal manufacturing business in 2021.
  • Organic food company SunOpta, a maker of plant-based foods and beverages, sold a stake to PE firms Oaktree Capital Management and Engaged Capital.
  • Also noteworthy are private label snack business Shearer's Foods, which is controlled by Ontario Teachers' Pension Plan, and Teasedale Latin Foods, which is owned by PE firm Truarc Partners.

Editor’s note: This story has been corrected to reflect that Bain Capital-backed Dessert Holdings acquired Dianne’s Fine Desserts (not that Bain Capital sold Dessert Holdings to Dianne’s Fine Desserts).

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