Interest in plant-based diets is not a new trend. The vegan and vegetarian movements have been growing for decades. However, the rise of a new consumer, the flexitarian, is a relatively recent trend and now dominates growth in the plant-based sector as a whole. Overall, the past five years have seen an acceleration in the growth of plant-based lifestyles as they’ve moved into the mainstream.
The European meat alternatives market is estimated to be worth €2.4bn and is expected to triple in size over the next five years. The rising popularity of vegetarianism and veganism is only a small factor, with the majority of growth in the category being driven by so-called flexitarian consumers.
As a result, many companies are focusing on creating vegetarian and vegan meals for the meat eater. Impossible Foods recently teamed up with Burger King to promote the Impossible Whopper, a plant-based vegetarian burger with the qualities of a meat burger in that it smells, tastes and even bleeds like beef. Quorn (acquired by Philippines-based Monde Nissin in 2015 for almost four times its revenue) has entered into a similar arrangement with KFC to bring to market the Imposter Burger, and McDonald’s is working with Beyond Meat on the McPlant Sandwich in test markets.
New brands, which resonate with health, ethical and environmental values, are driving purchase decisions amongst discerning multigenerational consumers across different demographics. Such businesses and brands are proving to be extremely valuable compared to other food sectors, with company sale prices reaching unprecedented levels.
So what impact is this phenomenal market growth having on M&A activity? Large fmcg companies, such as Unilever and Nestlé, are queuing up to acquire small businesses they would normally ignore simply to gain access to the market – for example, Unilever’s acquisition of Netherlands-based Vegetarian Butcher. Private equity and venture capital firms are also trying to get their hands on any fast-growing plant-based businesses they can afford, but trade interest is limiting their options to acquire earlier-stage businesses.
M&A activity is currently limited to those buyers with very deep pockets, as there is a race to acquire growth at almost any price – a trend we expect to continue as companies increasingly buy, rather than develop, new products in their R&D departments.
There is also major public-markets appetite for the plant-based sector. The much-talked-about Beyond Meat IPO was a huge success, with a current market valuation of more than $8bn, as was the recent IPO of Swedish plant-based milk sensation Oatly, which is currently valued at more than $11bn. We have also seen significant interest in this category from major meat companies, which are making big investments as they seek to embrace this competitive threat to their industry. Recent examples include the sale of Vivera, the fast-growing Dutch plant-based business, to Brazilian meat giant JBS for an incredible €341m.
Tyson Foods, the world’s second largest processor and seller of meat, has also made significant investments in various plant-based food businesses, such as Memphis Meats, the Tennessee-based startup pioneering lab-grown meat. The lab-grown meat sector generally is experiencing huge interest, not least because of the potential ethical and environmental benefits. Millions of dollars are being poured into R&D in this area – however, many experts believe we are some years away from seeing products on supermarket shelves.
While there is an increasingly large number of businesses seeking to take advantage of the plant-based trend, a significant scarcity value is being placed on assets of scale or companies that have reached profitability. Given the pace of growth and pressure to produce the “next big thing”, many companies are expanding rapidly to the detriment of their bottom line, which can lead to mounting losses and operational inefficiencies. As the sector matures over the coming years, we expect to see a shift in investor priorities, with increasing weight placed on profitability and less focus on uncontrolled growth. We believe investors will continue to pay high valuations for the right plant-based assets until the landscape is more consolidated.