‘Stratospheric’ valuations impact plant-based meat M&As

Soaring valuations of plant-based firms will be the biggest hindrance to M&A activity for meat processors looking to expand into the growth area, according to industry analysts.

With many meat firms facing dwindling sales and potentially looking to acquire plant-based businesses as an additional revenue stream, more activity has been widely predicted over the past year.

A recent report by Deloitte confirmed that plant-based M&As would be at the forefront of market activity in the future. 

“There has been sizeable and increasing M&A activity in recent years in the plant-based alternatives sector, driven by established food and drink companies and financial investors gaining access into the fast-growing plant-based alternatives market​,” the report said.

“Companies are looking to consolidate and expand existing positions to achieve economies of scale and/or reach new geographies​.”

Cranswick acquires Katsouris Brothers​

In June, meat processor Cranswick acquired London-based Mediterranean food producer Katsouris Brothers for £43.5m, a deal that was highlighted as a move by the firm to expand its range into the growing sector.

However, there are concerns that the plant-based sector has yet to show sufficient long-term value to justify potentially costly investments for the meat industry, which is already suffering from its own falling costs and dwindling profits.

“Logically, if you are in an industry where someone else is eating your lunch, then you do look at diversifying into that area​,” said Mark Lynch, director at M&A specialists Oghma Partners.

“The issue you have is that the valuations of these businesses are stratospheric, whereas the valuations of meat businesses are relatively low. ​

“So, for the owners to get over that hurdle, they have to face up to the fact that you are pricing a mature industry against a growth industry. There has to be a mindset change on valuation for the meat industry to pay up​.

Concerns about a bubble​

“What we are seeing in some plant-based businesses is almost tech-like valuations and the concern will be that there is a bit of a bubble around that. So, valuation is going to be the biggest stumbling block for expansion​.”

Clive Black, head of research at Shore Capital, agreed. “There are a number of moving parts here, and there is certainly a bit of sex and violence around plant-based firms at the minute​,” he told Food Manufacture. ​“This has attracted bees around the honey pot, leading to fulsome prices and fulsome aspirations from participants and owners in this area right now.​

“Is there a danger in overpaying? There is absolutely a danger in overpaying. The clever and patient ones will be the ones to win the race.”​

The issue of guarantees around return on investment creates the biggest hurdle for many businesses looking to enter the space right now. But although the fledgling sector is still showing signs of major growth, there remains doubts of its potential to demonstrate the necessary longevity.

“For some people there remains a concern that plant-based could simply be a fad,​” Lynch said. “Whether it lasts longer will determine and justify those valuations​.”

Are valuations realistic?​

Black added: “Only time can tell whether these valuations are unrealistic as it depends on what cashflow will be earned from these investments in the long-term​. To an extent there is probably a bubble and it is always very dangerous to jump into bubbles because they tend to burst​.”

To mitigate these concerns, some meat businesses have branched out to produce their own plant-based lines, which provides another opportunity for growth into the sector should valuations remain unjustifiable.

Most recently, pork giant Tulip launched its first plant-based pork alternative at Co-op stores as part of its new plant-based range, The Green Butcher.

Lynch believes this could be a more viable solution for many firms that are feeling the pinch from the downturn across the industry.

Science not prohibitive​

“You get to the point where meat is a private-label product in the UK, and the science around the developing the new ​[plant-based] product isn’t particularly prohibitive​,” he added. “In this case, it may be more sensible than paying a lot of money for a brand that may not have so much traction longer term.”​

Either way, the industry remains confident that opportunities are there for the taking for firms that see value in the move. Nick Allen, CEO at the British Meat Processors Association, told Food Manufacture​ that he expects more activity as the sector continues to boom.

“I would be very surprised if there were not [more deals] at the end of the day​,” he said.  “These are businesses in the business of supplying food.​”