Boom in food merger deals just getting started

The U.S. food industry has announced $42 billion in deals this year, but it could just be a taste of the next wave of consolidation coming in 2018.

Companies from Kraft Heinz to Conagra are seen as possible suitors next year as food giants struggle to generate growth. They face an array of challenges: shifting eating tastes, a resurgent Wal-Mart playing tough with suppliers and Amazon’s expansion into the grocery business.

The latest round of deal speculation was sparked by two food-industry acquisitions announced Monday. Campbell Soup agreed to acquire Snyder’s-Lance, a maker of potato chips and pretzels, and Hershey will buy Amplify Snack Brands, best known for SkinnyPop popcorn.

With those two transactions, the total value of food deals announced in the U.S. this year increased by about 54 percent from 2016’s $27.1 billion.

Acquisitions are increasingly seen as a way for oldline food companies to tap into new consumer trends -such as more fresh food. The industry needs something. Campbell’s shares have slumped 18 percent this year while Kellogg’s have dropped 11 percent. Even Kraft Heinz, run by managers from the private equity firm 3G Capital, is down 9 percent in 2017 as investors worry about the company’s ability to pull off another deal.

Much of those losses have been driven by the broad sales slowdown across the industry. Over the last three years, the 10 largest U.S. packaged food companies have seen about $17 billion in sales evaporate. That comes as consumer gravitate to more natural products and as a grocery industry price war prompts food retailers to invest in private label products to appeal to valueconscious shoppers.

What’s next? Several possible deals keep coming up in interviews with industry observers and in Wall Street reports. Here’s a breakdown.

Kraft Heinz: Now more than two years removed from the blockbuster merger that created the company, Kraft Heinz is expected to get back into the fray after its $143 billion bid for Unilever was rejected earlier this year.

Mondelez, Campbell, General Mills and Kellogg have been frequently mentioned as potential targets. Kraft Heinz could also look beyond food to a company like Colgate, with a portfolio of household brands and a large presence outside of North America.

The pressure to do a deal is building as Kraft Heinz managers, who hail from the private equity firm 3G Capital, are nearing completion of its cost-cutting program.

Nestle: Facing activist pressure, Nestle is trying to sell its U.S. candy business, as its new CEO focuses the company on faster-growing health care and coffee businesses. Hershey had been considered a potential suitor for the unit, people familiar with the matter told Bloomberg in September.

One persistent industry rumor has Conagra going after Pinnacle Foods, which owns Birsdeye frozen vegetables.

Seth Wenig / Associated Press Campbell Soup announced Monday that it will spend $4.87 billion in cash for Snyder's-Lance, gorging on a snack market that has grown increasingly competitive.