"While some key trends in the market will become even more entrenched — such as record-high cash reserves and the continued ease of global trade that M&A represents — others will shift," Bob Haas, leader of the firm’s global Mergers & Acquisitions Practice and co-author of the report, said in a release. "Much of the wait-and-see climate we saw in 2017 that has characterized M&A globally has dissipated. At the same time, with interest rates finally on the uptick, we will likely see an increase in U.S. companies making innovative acquisitions to stay relevant."

Valuations have been falling

Along with the dip in deal volume and value last year — down 6% and 2% from 2016, respectively — the enterprise value divided by earnings before interest, taxes, depreciation and amortization multiple also fell to 10.4, the lowest since 2011, according to Bahige El-Rayes, principal in A.T. Kearney’s Consumer and Retail Practice, and co-author of the report.

Nevertheless, he expects activity and values to pick up in 2018 as food companies reach out to target new and returning consumers and bolster the bottom line.

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"Legacy consumer and retail companies will fight back in 2018 and seek out adjacent and convergent businesses. Winners will be those that understand what consumers prefer and the channels they use, take a holistic view of their industry, and fearlessly pursue innovative, out-of-the-box opportunities."

Bahige El-Rayes

Principal, A.T. Kearney's Consumer and Retail Practice

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"With valuations softening everywhere except [the Asia Pacific region], we’ve still seen consumer and retail deal activity rising every year since 2009," he said in a statement. "Uncertainty remains a constant, but it’s taking a back seat as traditional retail and consumer companies continue to go after more customers and more revenue. We predict that legacy consumer and retail companies will fight back in 2018 and seek out adjacent and convergent businesses. Winners will be those that understand what consumers prefer and the channels they use, take a holistic view of their industry, and fearlessly pursue innovative, out-of-the-box opportunities."

El-Rayes told Food Dive that additional factors impacting deals are online players and consumers moving away from big brands to smaller ones that tell a relatable story. At the same time, he noted top executives are looking for both domestic opportunities and those outside the U.S.

"They expect more cross-border deals, and because we can repatriate cross-border funds that were stuck abroad, we can do more M&A. We expect to see a lot more deals happening, both domestically and foreign," he said.

Adjacencies and value are key

Private-equity firms and corporations have been sitting on "dry powder" for six years, El-Rayes said. With today's still relatively low interest rates, they are looking around for attractive deals adjacent to their existing businesses — such as the recent General Mills announcement that it will pay $8 billion for Blue Buffalo Pet Products.

"As the future grows, it’s no longer about acquisition, it’s about adjacencies," he said. "Like General Mills and Blue Buffalo and Hershey with Amplify, etc., those adjacencies are going to be the name of the game as we go forward."

Collaboration will also be important in the coming days as retailers work more closely with food manufacturers ​in order to "future-proof" — or "Amazon-proof" — themselves from takeovers, he noted. Part of the advantage will be to duplicate the fast delivery service Amazon now offers through Whole Foods.

"Basically what you do as a food manufacturer is to use the retailer’s footprint to deliver and ship to homes," El-Rayes said. "Retailers have more opportunities to work with food manufacturers — and get products to them in one or two hours."

More M&A activity in the retail sector can be expected as private equity firms watch them struggling for market share against incoming price-cutters such as Aldi and Lidl and sense a good deal that will likely bring value down the line, El-Rayes said. 

"You can get a prized asset, and if it has intrinsic value, you might get a good deal," he said. "The name of the game is private label. If you are able to have, as a retailer, a destination private label brand, if you are able to create that, then you are able as a retailer to control the economics and you are more able to set prices."

Culture clash and trade uncertainty

Culture clash presents another minefield as M&A activity picks up. El-Rayes said that it is one of the biggest reasons acquisitions fail. He said there needs to be more post-acquisition planning to accommodate inevitable style differences that crop up between companies.

To pursue investments and acquisitions, CPG firms have launched venture capital arms and funding incubators and accelerators. A.T. Kearney's research found that only Tyson and Campbell had truly benefited from this trend.

For others, execution and culture haven't followed the initial investment, El-Rayes said. When a VC arm buys into a startup, it's buying into a set of people and processes and a culture that is "going to do things in a way that's more agile and mobile than what they do," he said. As a result, the larger company either has to change or the benefit won't be fully realized.

As recent tariff disputes between the U.S. and China roil global markets, many have wondered how it could impact M&A in the near term.

"I think it’s creative uncertainty, and big companies, especially global ones, look at that and say, ‘I want to invest, but there’s uncertainty, so let’s see how that plays out,’ " El-Rayes said. "It may delay some deals from happening."