Canadian Lawyer InHouse

october 2014 36 INHOUSE I n d u s t r y S p o t l i g h t av maharaJ, counsel at Fasken Martin- eau DuMoulin LLP, easily recalls the acqui- sitions Kellogg Company undertook during his time at the cereal maker. In 2005, the business bought the Fruit Snacks line from Kraft Foods Group Inc. In 2012, it pur- chased Proctor & Gamble Co.'s snack unit. Kellogg made numerous other acquisitions and it wasn't the only food and beverage business making such moves. "You were seeing around the world a glob- al consolidation of food companies," says Maharaj, who was Kellogg's vice president and chief counsel, international by the time he left the company a few months ago follow- ing a global restructuring of the company. Straightforward business requirements drove Kellogg's acquisitions. With each purchase, the company aimed to address some simple questions: Is the acquisition target complementary to the business? Can it help Kellogg increase revenue and profi t? "[Does the acquisition target offer] man- ufacturing capability or a brand the orga- nization didn't have, that could easily scale and grow?" Maharaj adds. Many food companies are asking simi- lar questions today with respect to their own businesses as they merge and acquire. Canada's food, beverage, and agribusiness sector is abuzz with M&A activity. Indus- try observers say companies are feasting on each other to not only reach new markets with new products, but also address a mar- ket-wide revenue challenge. According to PricewaterhouseCoopers LLP, the food and beverage sector in this country saw 64 mergers and acquisitions in the 12 months ending March 2014, up 45 per cent from the 44 transactions recorded over the same period in 2013. In its "Capi- tal Markets Flash — Canadian M&A Deals Quarterly" for the fi rst three months of 2014, PwC said companies primarily seek to extend their market reaches by purchasing established brands in new areas. That's why Ebro Foods, a Spanish company, scooped up Olivieri Foods Ltd. from Canada Bread Company Ltd. for $120 million last Octo- ber, for example. "Building a brand is diffi cult and time consuming," PwC said in its report. "It's faster to acquire one. Multinational food and beverage giants are always on the look- out for targets that have established a strong brand. Right now, they're looking closely at North American companies." A GLOBAL TRENd This feeding frenzy isn't just happening in North America. In the U.K., for instance, the number of mergers and acquisitions in the food and beverage sector increased by a third between Q4 2013 and Q1 2014, accord- ing to analysts at Grant Thornton UK LLP. Back in Canada, investors on stock mar- kets are fanning the M&A fl ames. "Finan- cial players are also active buyers," PwC said. "They like the stability the sector pro- vides. Consumers always need what food and beverage companies sell." Canadian food regulations play a role in the increased M&A activity, says Peter MacGowan, partner at Blake Cassels & Graydon LLP. He points out that Canada has a strict supply-management regime for meat and dairy. This system attempts to balance domestic production and consump- tion. The Canadian Dairy Commission, for instance, limits the amount of milk, farm- ers can produce. One characteristic of this system, MacGowan explains, is prohibited production for export: companies that need dairy for manufacturing aren't allowed to use the milk or cheese in products destined for sale outside of Canada. So Canadian companies that want to use Feeding frenzy Mergers and acquisitions in the food and beverage sector are up. Industry observers say businesses not only aim to reach new markets, but also to repair a revenue problem. by steFAN DUboWsKI I n d u s t r y S p o t l i g h t Feeding frenzy

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