By Bernie Pacyniak
There’s nothing like being on a holiday break to get away from the headlines, deadlines and lines in general. More often than not, that’s when companies prone to making headlines like to release their announcements. Although many of these take place toward the end of the year, the fourth of July weekend also offers an opportunity to make some waves while everyone’s grilling or setting off fireworks.

Thus, when I returned home from a family outing during this most recent holiday, I was curious about what had happened during a self-imposed virtual news blackout. As I discovered, not to any surprise, the world continued to operate without me just fine.

Nevertheless, there were two major confectionery news stories that caught my eye yesterday morning. First, I discovered that Nestlé was indeed pursuing Hsu Fu Chi, China’s leading confectionery company. And second, Tzetzo Brothers, Inc, a Buffalo-based distributor of candies had merged with another distributor, Wythe Will Distributing of Virginia.

Upon investigating the Nestlé/Hsu Fu Chi proposed acquisition, I discovered that both had admitted to having talks with each other. Hsu Fu Chi accounts for 6.6% of China’s domestic candy industry, which doesn’t include chocolates nor cakes and biscuits.

Sales last year totaled 4.3 billion yuan (about $663 million) while profits reached 602 million yuan (about $93 million). According to all the press reports I’ve read, it seems Nestlé has been aggressively expanding its presence in China for some time, and this represents another key component of its strategy.

The acquisition would not only boost Nestlé’s confectionery sales in China (making it the leader in that country), but globally as well. Currently, it accounts for 12% of the world’s confectionery sales, trailing Kraft Foods and Mars.

For Hsu Fu Chi, going in with Nestlé gives it international reach, a goal that has eluded the Tsui brothers, founders of the company.

Keep in mind that this deal ― if it happens ― would still require the approval of the Chinese government, always a tricky maneuver. Still, if this goes down, it would have significant implications on the global confectionery market as well as the Chinese confectionery market.

The appeal of mergers doesn’t merely apply to multinationals, however. Tzetzo Brothers, Inc. and Wythe Will Distributing of Virginia combined revenues will total only slightly more than $200 million, a far cry from the reported $2.6 billion deal involving Hsu Fu Chi.

Nevertheless, the deal represents the same kind of benefits as the Nestlé/Hsu Fu Chi buyout: It delivers a broader avenue for growth.

In this instance, complementary operations and an expanded geography provide the economies of scale to compete more aggressively and further growth.

So that leads me to thinking, does it make sense for any of the mid-sized family-owned companies to look into mergers or acquisitions? I understand that owners are often approached by bankers and financial brokers on a weekly basis. I also hear that it’s rare for all the stars (product mix, brands, manufacturing capabilities, distribution reach, company culture, financing) to be in total alignment.

The most recent recession has certainly amplified the caveat emptor (buyer beware) clause amongst business owners; caution rules every decision.

Such a tentative climate, however, opens up opportunities for those willing to take a risk. Moreover, it’s clear that industry consolidation will continue. Granted, the mid-sized component of the U.S. confectionery industry has been fairly resilient to date. Still, maintaining distribution, brand uniqueness, manufacturing efficiency and innovation will become even more challenging as time goes on.

Mergers and acquisitions may not be the answer, but staying put isn’t either.