1. Introduction

During the last years, the process technology sector for the food, beverage and pharmaceutical indus-tries, as a sub-sector of mechanical engineering or the “Industrials” sector, has sometimes been accused of a certain sluggishness in the M&A environment. The reason for this is that the number of larger transactions (>EUR 1bn) in this sec-tor has been quite straightforward. Nevertheless, there was a constant deal flow, which was driven by a few active compa-nies. In general, the sector is characterized by a few large in-ternational players, mainly from Europe and North America, as well as a large number of smaller local companies, which are often family-owned. There have been hardly any significant transactions with Asian participation in the sector in recent years with regard to European or US-based assets. Recent transactions and current trends point out that transaction activity can be expected to continue in the coming months, motivated by both strategic and private equity investors.

• Process technology for the food, beverage and pharma-ceutical industries is a sector that has been continuously consolidating for several years.

• A few players are actively driving the transactional af-fairs. Nevertheless, there are profitable, mostly family-owned target companies, particularly in the small- and mid-cap segment.

• The sector itself has been developing positively for years. In particular, the increasing demand for affordable food, beverages and pharmaceuticals is supporting this development. These and other market trends will con-tinue to ensure constant M&A activities in the future –regardless of the latest economic forecasts for this sector.

• Price setters are often US companies and financial sponsors.

• Strategic players have the ambition to remain or be-come “best-in-class” champions. This requires a clear strate-gic focus and constant active portfolio management, including transformational ambitions.

Fig. 1 • Selected Players with Significance for M&A Activitity
(own interpretaion and not conclusive)

Source: Own illustration

2. Lighthouse transactions vs. buy-and-build

The most recent major transactions include the public takeover of Marel hf. (Marel), Garðabær/Iceland, by John Bean Technologies Corporation (JBT), Chicago/USA, an-nounced at the beginning of 2024. The strategically moti-vated transaction required three takeover offers. The last one, which valued Marel at approx. 16.6x LTM1 EBITDA (stand-alone) or USD 3.9bn enterprise value and included a takeover premium of approx. 58%, was ultimately able to motivate Marel’s shareholders to give their consent2. The closing of the transaction is still subject to regulatory and antitrust approvals but is still expected to take place in 2024. This transaction will create a leading diversified solutions provider for the food and beverage industry, which will operate under the name JBT Marel Corporation. There may also be smaller divestments on both sides due to merger control aspects.

Two further significant acquisitions were driven by the US financial investor BDT & MSD Partners (BDT & MSD) last year. In May 2023, BDT & MSD acquired ProMach Inc. (ProMach), Covington/USA, for around USD 5.0bn, which cor-responded to an EV/LTM EBITDA multiple of 15.0x3. Two months later, in July 2023, BDT & MSD announced the ac-quisition of a 45% stake in the process and packaging spe-cialist I.M.A. Industria Macchine Automatiche S.p.A., Ozzano dell'Emilia/Italy, (IMA Group) for a value of around USD 6.9bn or an EV/LTM EBITDA multiple of 15.3x4. The market currently assumes that BDT & MSD will merge the two companies IMA Group and ProMach to form a new major international player in process technology field.

There have also been a number of significant transactions in previous years, such as the acquisition of the former pack-aging activities of Robert Bosch GmbH (BOSCH Packaging GmbH, now Syntegon Technology GmbH [Syntegon], Waiblingen/Germany) by CVC Capital Partners in 2019 (EV/LTM EBITDA multiple of approx. 13.0x), the acquisi-tion of Duravant LLC (Duravant), Downers Grove/USA by The Carlyle Group in 2021 (EV/LTM EBITDA multiple of around 16.0x) or the acquisition of US specialist SPX FLOW Inc. (SPX FLOW), Charlotte/USA by LoneStar Funds, also in 2021 (EV/LTM EBITDA multiple of around 17.0x)5

Table 1 • Selected Transactions in the Sector 2017–2024

Source: Analysis of company information, press releases and S&P Capital IQ

The aforementioned companies JBT, IMA Group, ProMach and Duravant alone have made around 60 acquisitions in the last five years. However, smaller players such as the Canadian company ATS Industrials Automation Inc. (ATS), Cambridge/Canada, also completed ten acquisitions in the same period. The Italian Omnia Technologies Group (Omnia Technologies), Trevignano/Italy, can be used as an example of the successful execution of a buy-and-build strategy. In 2020, the Italian-origin private equity investor Investindustrial acquired a majority stake in Della Toffola S.p.A., Signoressa/Italy, and subsequently used it as a plat-form vehicle. To date, more than 20 further companies (mainly small-caps) have been acquired via the vehicle, thus forming a process technology group with sales of over EUR 500mn, which is now active on the market as Omnia Tech-nologies. The company still sees well over 100 additional potential takeover candidates.

3. Observations on valuation levels

Depending on the basis and inclusion of historical transac-tions in the industry, the average valuation niveau is between 14.0 and 17.1x EV/LTM EBITDA7. In general, transactions in the pharmaceutical-near environment are valued higher than acquisitions in the food or beverage industry. Further-more, transactions involving US companies achieve higher valuations than purely European deals. The latter is due to the undergoing inflation of company valuations in the US market.

The valuation view of potential future transactions hy-pothesizes that US based companies in particular will dominate the M&A activity in the future. Recent acquisi-tions in Europe with US participation have generally led to higher valuations, making it easy for sellers to opt for American bidders from a pure monetary perspective. This development means that European (strategic) investors are often not in a position to offer competitive valuations. For listed companies in particular, it will be a challenge to justify valuations above their own trading multiple8, even if synergies could justify a strategic premium.

In addition, it can be observed in the market that financial in-vestors are once again in a position to acquire larger and more favorable LBO financing9. As a result, private equity buyers remain key competitors for strategic investors in competitive bidding processes. The capital costs of sponsors are gradually becoming more favorable than those of strategics again. As a result, strategic premiums and synergy considerations are once again a key factor for strategic bidders to win bidding wars against financial investors. However, this means paying out some of the capital value of synergy potential to the seller.

The challenge for European strategic investors is therefore twofold: they must face the higher valuations of US com-petitors and at the same time overcome the capital cost ad-vantages of financial sponsors. Listed companies in particular, which are valued at up to 10x EV/EBITDA, re-quire a well-derived business case that can justify a multiple above their own and is accepted by the capital market and investors. In these case, integration planning and the defi-nition of plausible synergies are of utmost importance.

(Mega) trends that affect most “capital goods” sectors can help to underpin and justify investment and acquisition decisions.

4. Market trends

The process technology sector for the food, beverage and pharmaceutical industries has already changed significantly in recent years due to the consolidation efforts of a few large and mid-cap players. However, the M&A activities within the industry over the last two years in particular give reason to hope for further transaction activity in the future. On the one hand, the transformation efforts of large players will continue to be pursued (IMA Group & ProMach, JBT & Marel), while on the other hand there are still a large num-ber of small-cap companies that will not be averse to an ac-quisition by a global organization, either due to growth ambitions or succession issues.

In addition, there are a number of market trends that will positively support M&A activities within the sector – despite all the negative influencing factors such as the decline in order intake, the previous interest rate trend, inflation ob-servations, fears of recession, wars and political uncertain-ties due to upcoming elections, etc.

• Continued growth in the food, beverage and pharma-ceutical end markets: Average growth rates of over 5% per year are expected in the relevant end markets until 202810. These will be driven by factors such as continued population growth and urbanization, rising per capita income, increasing automation and the growing focus on sustainable products.

• Financially sound strategic investors: Fortunately, com-panies continue to have strong balance sheets and available liquid funds for investments. In addition, conglomerates are expected to focus on core activities, which will result in carve-outs and new transaction processes. Strategic players increas-ingly want to develop into “best-in-class” champions. Active portfolio streamlining will raise additional funds, which could be invested in transformational projects.

• Pressure to transact at financial investors: After pri-vate equity players have been acting rather cautiously during the last 18-24 months, there is unchanged pressure to invest capital. As a result, larger equity tickets can be in-vested, which will also make public-to-private transactions by larger funds more likely. On the other hand, there are some funds that are approaching the end of their investment horizon and need to sell-off portfolio companies; alterna-tively, create IPO candidates.

• Shareholder activism: One of the key motivators for activist investors is the call for increased M&A activity by a company to play a shaping role in the transformation of an industry. In particular, companies with weaker M&A per-formance can become potential targets for activists, further fueling the M&A environment.

• Regionalization and protectionism: “Local-for-local” strategies do not stop at the mechanical engineering sector. The local backward integration of their own value chain is occupying many companies with the aim of becoming in-dependent of the global supply chains and protectionist measures.

• New technologies and digitalization: New types of food, e.g., cell- or plant-based meat substitutes, require new manufacturing processes, which in turn are supported by innovative and self-learning machines. Furthermore, the continuous digitalization of products and the ongoing de-velopment of artificial intelligence are opening up new busi-ness models in the aftermarket sector (i.e., X-as-a-Service).

• ESG and energy transition: The strengthening of their own range of ESG-compliant products and less energy-in-tensive production will prompt some companies to drive this forward much faster via M&A. In addition, there seems to be a slow trend in the market to assign a valuation-pre-mium to companies with a strong and credent ESG focus.

5. "Best-in-Class" characteristics

M&A will be one of the key levers that will help companies in the process technology sector to continuously develop themselves and their business models. In addition, follow-ing organic growth, acquisitions are still the main driver of shareholder value improvement.

In order to survive in the top group of “high quality indus-trials”, companies should align their strategic ambitions and actions along five key value drivers:

The value levers “operational excellence” and “effective or-ganization” are under constant pressure as a result of con-tinuous deal flow. The associated risks can only be mitigated through clearly defined and well thought-out integration planning. Dis-synergies must be avoided, ideally at the level of administrative and operational costs. In particular, redun-dancies in administrative costs or sites can be avoided by merging and releasing staff. Swift and structured action is key here, as duplicated costs put the economic success of an acquisition at risk from day one. An integration manager and an active “integration management office” must there-fore be appointed immediately after closing.

In addition to the above-mentioned value drivers, it can be observed that the capital markets positively recognize radical but plausible corporate transformations. In this con-text, radical means an independently initiated corporate transformation that is unique in terms of the portfolio or the company's own balance sheet and creates additional value. Proven value-creating transformations that have more than doubled the respective shareholder value12 include (even if they are not part of the process technology sector for the food, beverage and pharmaceutical industries):

► Siemens – The carve-outs and spin-offs of the “Medical Technology” (Siemens Healthineers AG) and “Energy” (Siemens Energy AG) divisions as well as the carve-outs and sales of various smaller businesses;

► GE – The split of the group into the now independent units GE Aerospace (aerospace), GE Vernova (energy) and GE HealthCare (medical technology); or

► United Technologies – renamed Raytheon Technolo-gies Corporation after its acquisition (defense and electronics) and the subsequent spin-off and independence of today's Carrier Global Corporation (air conditioning and heat pumps) and Otis Worldwide Corporation (elevators).

Fig. 2 • Value Drivers to become "Best-in-Class" Champion

Source: Own illustration

In addition to the operational and strategic orientation, the ability to innovate remains a key differentiating feature and success criterion for technology companies. This includes the extent to which a company is able to translate newly de-veloped products into sales, as well as the types of innova-tions it comes up with. The spectrum ranges from new technologies to more efficient products, circular economy approaches and new forms of services.

In the end, it all comes down to the fact that companies must constantly reinvent themselves in order to remain competi-tive and attractive to investors. Dynamic companies will generally find it easier to use M&A as a catalyst for transformational developments.

6. Outlook

Both the food and beverage industry and the pharmaceu-tical industry have been characterized by strong market growth and low volatility over the last approximately 20 years. This has also helped the process technology sector and has given companies a positive outlook for long-term growth. The current reluctance of customers to place new orders will not last. The more autonomously a company can shape the industry and its trends, the more certain it can be of being perceived as a “best-in-class” champion with all the advantages for shareholders and stake-holders.

The large and mid-cap companies in the sector in particular want to differentiate themselves from one another. They will actively shape the disruption and consolidation of the in-dustry. The organic route is certainly the best, but this will not succeed without inorganic measures. Against this back-drop, M&A activities in the process technology sector will remain at a decent level in the short and medium term and new, larger players may be formed that will make their con-tribution in the long term.

Besides the companies themselves, it will be interesting to see how financial investors who currently hold relevant companies in their portfolios position themselves. Espe-cially where funds are slowly approaching the end of their term.

Companies that have grown through M&A are well ad-vised to continuously review and scrutinize their port-folios. Especially where the current market valuation is coming under pressure due to a conglomerate discount. The management of these companies must not lose focus, as otherwise investor confidence may shrink or even activist investors may be called into action. Espe-cially those who believe a “sum-of-the-parts arbitrage” is feasible.

The process technology sector for the food, beverage and pharmaceutical industries will certainly continue to offer an exciting environment on the M&A side.

About the author : Tobias Gwisdalla, M&A and transformation expert

Tobias Gwisdalla is an expert for transformational transactions on both the buy and sell side as well as for holistic corporate trans-formations. He gained around 20 years of experience in M&A and corporate development area in various industrial companies as well as in consulting and professional services.

1 LTM = Last Twelve Months

2 Public information

3 According to several press articles

4 According to several press articles

5 According to several press articles

6 Basis: Analysis of company information, press releases and S&P Capital IQ

7 Basis: Analysis broker reports and S&P Capital IQ

8 The valuation of European players peaks at up to 15.1x EV/EBITDA, e.g. Alfa Laval. 9 LBO = Leveraged Buyout

9 www.wam.ae/en/article/13yubb4-swiss-based-nuos-agwa-abu-dhabi-partner-build

10 OECD Economic Outlook

11 https://www.wam.ae/en/article/13yubb4-swiss-based-nuos-agwa-abu-dhabi-partner-build

12 Sum of the market values of the respective (new) individual companies compared to the market valuation prior to the corresponding measures.