With the US Federal Reserve expected to cut interest rates in September, the food industry is ripe for consolidation.

Accordingly Kevin DreyerCo-CIO of Value at Gabelli FundsLower interest rates generally stimulate M&A activity.

“It’s important to note that falling interest rates tend to lead to an increase in M&A activity,” Dreyer told CNBC on Friday, August 23. “Food stocks have had a rough year – the consumer boom and inflation have hurt them – they’ve struggled with volume growth, but snacks have been a good area within the food space.”

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Mars Inc.The recent acquisition of Kellanova K for $35.9 billion is a good sign for the sector, Dreyer noted. The move reflects a strategic reorientation and is an example of how companies are trying to strengthen their positions in more profitable niches.

In October 2023, Kellanova, which operates the global snacking segment, completed its separation from WK Kellogg Co KLG.

Also read: Candy giant Mars acquires Cheez It parent Kellanova in a deal valued at $35.9 billion

Campbell Soup Company CPB was also active and recently acquired Sovos Brands, Inc. SOVOthe maker of Rao’s pasta sauce.

Dreyer considers Campbell Soup a company to watch, saying the company could “end up following the ‘Kellogg-Kellanova script.'”

Campbell Soup’s investor day will take place in September, and the company is expected to unveil plans that could further shape the landscape of the food sector.

When asked which companies are attractive takeover targets, Dreyer named his preferred mid-sized food stocks: BellRing Brands Inc. BRBRManufacturer of Premier Protein Shakes.

“Premier Proteins is currently experiencing mid-double-digit growth in an industry that is not growing much. We believe they will continue to do well on their own, but someone else may want to buy them,” Dreyer said, stressing that BellRing Brands could be an attractive takeover target.

With M&A activity increasing, investors are advised to keep a close eye on potential deals that could reshape the industry landscape and provide new growth and investment opportunities.

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