Snacking category outlook: M&A activity on the rise

In August it was announced that Mars had agreed to acquire Kellanova for $35.9bn in what looks to be the biggest deal of the year.

Scheduled to close within the first half of 2025, the deal will see Kellanova (which was formed in 2023 after spinning off from Kellogg’s in the US) incorporated into the Mars Snacking division which includes brands such as Skittles and Snickers.

“Strategic buyers, including private equity firms, are particularly drawn to premium assets within the sector,”​ said Scallan.

“This appetite is reflected in the rise of 'mega deals' in 2024, such as Mars' acquisition of Kellanova, the largest in snacking history."​

Scallan believes that the transaction is emblematic of growing interest among investors in the snacking category, with recent deals including PepsiCo’s $1.2bn acquisition of tortilla chip business Siete Foods​​ and just last month, Kestrel Foods’ deal for Indie Bay Snacks​​.

“A broader trend we've observed is the significant presence of corporate buyers in the M&A activity within the wider food and beverage sector, and this holds true for the snacking market as well,” ​Scallan said.

“Many corporates are coming off strong financial performances, bolstered by healthy cash flows and robust balance sheets. This financial stability allows them to pursue acquisitions that prioritise long-term efficiencies over short-term growth.”​

With corporations seeking deals that possess strategic value, such as geographic expansion or the diversification of their product lines, growing market segments such as snacking are really attractive.

“The shift towards healthier eating has bolstered interest in 'better-for-you' and 'healthy indulgence' snacks, creating opportunities for companies that can innovate in this space,”​ continued Scallan.

“By acquiring businesses that align with trends like healthier eating and sustainable sourcing, they aim to reinforce their market positions while capitalising on evolving consumer preferences.”​

The trend of ‘increased consumption occasions’ was also identified by Houlihan Lokey as a driver of demand within the category, with the opportunity to add of savoury brands such as Pringles to its portfolio a key motivator in Mars’ deal for Kellanova.

Areas of opportunity

Looking forward, Scallan projects that the snacking sector will continue to flourish as economic conditions look to improve and consumer confidence recovers from the high inflation levels experienced over the past few years.

“As interest rates continue to normalise and visibility of performance increases (including volume recovery and inflation pass-through), an uptick in M&A activity is expected as we approach 2025,” ​he explained.

“Activity is likely to intensify as private equity grows more competitive with improved debt availability and pricing.”​

In terms of the opportunities available to firms, Houlihan Lokey analysis suggests that healthier and more sustainable products will continue to prove popular.

“Consumer demand for health-conscious snacks will continue to drive growth in ‘better-for-you’ options that prioritise natural ingredients and address dietary needs like gluten-free, plant-based, and low-sugar options,” ​Scallan said.

“Additionally, a growing emphasis on sustainability is driving innovations in eco-friendly packaging, with many companies responding to consumer preferences for environmentally responsible products.”​

Asked to consider the potential obstacles to growth within the snacking category, Scallan cautioned: “Strong underlying tailwinds promise growth as inflation and interest rates stabilise and sentiment improves, though supply chain pressures and raw material costs remain significant challenges.​

“While branded snacks benefit from consumer loyalty, ongoing price sensitivity could continue to hinder growth volume.”​

Another factor worth considering is the growing interest among consumers in regenerative agriculture, a farming and grazing practice that can reverse climate change by rebuilding soil organic matter and restoring degraded soil biodiversity.

In response to the Mars and Kellanova deal, CEO at CIBO Technologies Daniel Ryan said the merger could play a large role in the more widespread adoption of regenerative practices within the food and drink industry.

“Reading the quotes it seems that sustainability was one of the drivers in doing this deal, which is encouraging,” ​Ryan said in an exclusive interview with Food Manufacture on the deal which you can read here​​.