An Unexpected Food Fight Breaks Out in the M&A Market

Welbilt Inc. isn’t a household name, but most Americans have likely eaten a meal produced with its equipment at some point in their lifetime. The company makes griddles, soda dispensers, cold-brew taps, ice machines, and the technology that keeps salad bars chilled and buffets warm. Its customers include convenience stores, fast-food chains, hotels, and restaurants. And now Welbilt, based in New Port Richey, Fla., is at the center of a bidding war.

Ali Group, a closely held maker of gelato dispensers, coffee machines, and doughnut fryers, is attempting to wrest control of Welbilt from rival Middleby Corp. The interloper confirmed on May 28 that it had offered to acquire Welbilt for $23 a share in cash, or $4.6 billion including the assumption of debt. The deal Welbilt agreed to with Middleby in April is made up of stock and valued at about $21 a share based on recent prices.

Food service isn’t the sexiest of businesses. A digital and automation revolution in the behind-the-scenes aspects of the dining experience had long been talked about, but it never seemed to gain traction as restaurants dealt with menu innovations, drive-thrus, and other priorities. Then the pandemic happened.

The ability to monitor equipment and inventory digitally took on new meaning, as did the opportunity to track ordering trends and use the data to try to get a grip on how demand was shifting. The need for automation has become only more pressing as restaurants compete with the rest of the economy to rehire workers. Demand for modular setups and ghost kitchens—food-service locations with no on-site dining—has also increased as more restaurants pivot toward delivery options. March marked the busiest month for orders in the Americas since Welbilt spun off from Manitowoc Co. in 2016, according to its most recent earnings update.

To take full advantage of these trends, food-equipment makers need to invest in innovation and offer a wide array of products. The large debt load Welbilt inherited from its former parent company “really limited our ability to pursue a growth agenda,” Chief Executive Officer William Johnson said on a call in April to discuss the Middleby deal. “We feel that we’re stronger together addressing those changes in the marketplace.”

Middleby is standing firm for now, arguing its offer is better than Ali’s: It’s further along in seeking regulatory approval, and the stock component would allow Welbilt shareholders to benefit from future growth opportunities. The valuation is already getting expensive, though, and matching Ali’s all-cash offer would strain Middleby’s balance sheet, Saree Boroditsky, an analyst with Jefferies, wrote in a report. Ali also has the benefit of not having to answer to public shareholders. But Middleby does have some room to increase its offer and likely will have to sweeten the terms if it wants to win this takeover battle.
Sutherland is a columnist for Bloomberg Opinion.

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