Attendees line up to have photos taken with an Oscar Mayer hotdog cutout during a shareholders’ shopping day ahead of the Berkshire Hathaway annual meeting in Omaha, Nebraska, in May 2019
Kraft Heinz’s US sales have only risen 8 per cent year on year in the six months to end of September © Houston Cofield/Bloomberg

Warren Buffett is not the only one having problems hunting for elephant-sized acquisitions.

His friends at 3G Capital, the Brazilian-US investment group, are asking investors for more time to deploy funds. It blames sky-high valuations and pandemic uncertainty for the lack of suitable candidates.

Holding back is a prudent move. Until recently, 3G looked unstoppable. A stringent approach to dealmaking that focused on slashing costs enabled it to grab consumer brands like Burger King and deliver handsome returns to investors.

But megadeals can result in mega messes, including 3G’s last big bet: the 2015 merger between Kraft and Heinz. The combination created one of the largest food companies anywhere with about $28bn in combined annual revenues. But a slash-and-burn approach could not resuscitate a consumer goods company with a portfolio of ageing brands. Getting health-conscious millennials to try Maxwell House coffee and Oscar Mayer hot dogs requires time and investment.

The pandemic should be a time for the processed food giant to shine. Consumers have stockpiled ready-made meals and foods with long shelf lives. Yet Kraft Heinz’s US sales have only risen 8 per cent year on year in the six months to end of September. Compare this with General Mills. The owner of Cheerios cereal reported a 25 per cent surge in US retail sales in the six months to end of August. Even Campbell Soup, no stranger to struggling brands, managed a bigger increase in a similar timeframe.

Worse, Kraft Heinz lacks a premium enterprise value — at 11 times its ebitda — to its peers to offer a strong acquisition currency. Billions in impairments after an accounting scandal that led to huge losses did not help. Shares worth nearly $100 each in 2017 now trade at about $32.

It will take time for 3G to find better hunting grounds. The fund has said it may deploy more capital away from the consumer industry, a primary focus over the past decade. Good thing as its own special sauce has clearly gone off.

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