Food Sector Participants Pause M&A Amid Heightened Geopolitical Uncertainty
Merger and acquisition (M&A) activity in the Food sector has fallen year-over-year (YOY), as trade and tariff policies have created high levels of uncertainty for the business operating environment and the health of the consumer.
Widespread tariffs on U.S. trade partners have threatened to squeeze company margins and ignite inflation, dampening the 2025 outlook for Food sector participants. However, the regulatory environment has remained fluid, supporting optimism for increased profitability and Food M&A opportunities in the latter half of 2025.
Participants Explore Strategies to Minimize Tariff Impacts
Businesses across the food supply chain have started to reassess strategies to minimize the impacts of the newly announced tariffs. Similar to President Trump’s first term, many public companies have flagged continued diversification of sourcing countries as a key component of maintaining margin performance under the regulations.
Unlike the first term, inflation has remained elevated for an extended period leading up to the 2025 tariff implementation leaving many companies with little room to absorb the tariff-induced input cost hikes. Finding alternative sourcing and suppliers will likely be a top focus for Food sector participants.
Additionally, food producers may look to reduce their reliance on costly raw materials by altering product formulations, substituting cheaper ingredients to lower tariffs or to source domestically.
This could also apply to packaging as aluminum and steel tariffs have placed added pressure on canned goods in the Food space. Input cost levers in product formulation and packaging have created a likelihood of shrinkflation in 2025 as businesses pull back portion sizes to lower input costs without adjusting the price to consumers.
Larger sector participants can realign portfolios, divest less profitable products, and focus on the highest margin goods with sticky consumer bases. Food distributors, whose primary exposure is to domestic finished goods, stand to gain the most in this environment. Distributors will likely gain pricing power as food prices rise, supporting a positive segment outlook for revenue and M&A activity.
Private Strategics and Financial Sponsors Drive Sector M&A
M&A volume in the Food sector has contracted year to date (YTD) with 41 transactions announced or completed compared to 68 in the prior year period. Many of the consumer spending and deal flow headwinds present in 2024 have continued in early 2025.
Participants have delt with significant geopolitical and economic uncertainty, stemming from the change in Administration and new tariff policies. This has placed robust concerns over the health of the consumer and the business operating environment, leaving many would-be acquirers on the sidelines.
Strategic buyers have narrowly led sector transaction activity to date, comprising 53.7% of deals. These buyers have taken pause, likely focusing on internal strategic realignment in the face of widespread tariffs. Strategic deal volume has decreased 46.3% YOY, with public strategic M&A down 42.9% and private strategic M&A down 47.1%. Private equity activity has fallen 29.5% YOY to 19 transactions. The decline is attributable to a 47.1% drop off in add-on transactions.
Platforms, however, have remained flat YOY with 10 deals in both YTD 2024 and 2025. Processing segment participants have comprised the majority (52.6%) of private equity deals to date.
The Branded and Processing segments have borne the brunt of subdued M&A activity YTD, with Branded acquisitions falling 28% and Processing deals declining 61.8% YOY. These two segments have still accounted for the majority (75.6%) of deal flow.
Meanwhile, the Distribution segment has observed an uptick in dealmaking, rising by one deal YOY to 10 transactions.
Capstone anticipates M&A to resume as policy uncertainty clears and firms look to M&A to improve operating efficiency and gain more control over the value chain.
The above is an excerpt from Capstone Partners – IMAP USA’s’ Food M&A Update - Tariff Uncertainty Slows Food M&A, Distributors Well Positioned for Growth. For over 20 years, Capstone Partners has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services uniquely tailored to help owners, investors, and creditors through each stage of the company's lifecycle.
