Rush of transactions reflects balance sheet strength
June 29, 2010
L. Joshua Sosland
It is difficult to remember a larger rush of grain-based foods acquisition announcements than what has transpired in recent days. Two of the acquisitions – Ralcorp’s planned purchase of American Italian Pasta and Corn Products decision to acquire National Starch — were for purchase prices eclipsing $1 billion. Grupo Bimbo, Newly Weds Foods and Pittman & Davis were other buyers.
While the large number of transactions may be due in part to coincidence, a number of important influences also may be at work. The rush of activity, greater than in other sectors of the economy, reflects the balance sheet strength of buyers, the attractiveness of the sellers (a diverse collection of companies) and also the acquirers’ belief in the strategic merits of a broader product portfolio. In each case the purchase would take the buyer into a new product category or geography.
Not insignificant in the sellers’ receptiveness, at least domestic sellers, is the desire to take advantage of attractive capital gains rates that will evaporate with the turn of the calendar next Jan. 1. Against this backdrop, the likelihood increases of additional deals in the months ahead.