JAB Holding Company announced it would acquire Panera Bread for $7.5 billion to further its presence in the US fast-casual restaurant market. The transaction is expected to close in Q3 2017. The acquisition also gives JAB access to Panera’s experienced management. Chief Executive Ron Shaich and the management team will continue leading Panera after the deal is finalized.

JAB is a European family business that has acquired a number of US brands since 2012, including:

Competing with Starbucks

JAB may begin serving Peet’s and Caribou coffees in Panera’s 2,000 restaurants in order to compete with Starbucks, the leading coffee brand.

Although Panera and Starbucks both sell coffee, teas and food,  Panera is best known for its relatively healthy soups, sandwiches and salads while Starbucks is best known for its premium coffee and teas.

While Starbucks is unquestioningly the dominant player in the US for coffee and tea, when it comes to food, Panera has Starbucks beat. When customers want a healthy, inexpensive lunch they think of going to Panera, not Starbucks, for soups, salads, and sandwiches.

“Panera’s food will always be better than what Starbucks can offer. Starbucks is not designed to offer that high-end food. They don’t have the kitchens,” says analyst Peter Saleh.

It will be interesting to see if this acquisition affects Starbucks and how the company reacts. Will they acquire a company to beef up their food? Or will they double down on their drink offerings? The company acquired Teavana in 2012 for $620 million in cash in order to diversify its products.

The Advantages of Privately-held Companies

In addition, Starbuck still faces the pressure of being a publicly traded company while Panera will be able to go private with this deal. In fact, going private was one of the drivers for this deal.

While launching an IPO provides capital that can fuel a company’s growth, there are also drawbacks to going. Public companies must answer to shareholders, spend time on SEC filings, and announce their strategic growth plans to the public, which includes their competitors.

On the other hand, privately held companies are able to focus on long-term growth rather than quarterly earnings reports. They can also be more discreet in executing their strategic plans.  Be under the radar with strategic growth plans.

Ron Shaich, Panera’s CEO put it this way:

“For the last 20 years, I’ve spent 20 percent of my time telling people what we’ve done to grow and another 20 percent of my time telling people what we’re going to do to grow. I won’t have to do that anymore.”

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What will 2014 look like for mergers and acquisitions? While no one knows what the future holds, I see these three trends continuing:

1. Increased middle-market M&A

Middle-market companies are the primary driver of economic activity in the U.S.  With favorable market conditions, expect an uptick next year. A survey by Mergers & Acquisitions  showed a positive outlook for 2014; 71% of respondents expect a better year for mid-market M&A than 2013. They identified healthcare, technology, energy, and manufacturing as the top sectors for growth.

Increased M&A activity, especially in the middle-market, is an indicator of an improving economy. Executives are more likely to make deals when they are confident in the economy and the markets.

2. Healthcare consolidation

The Affordable Care Act has massive implications for the healthcare industry, but no one can say for certain what those implications are. Amidst all the uncertainty, the healthcare industry is seeing a significant amount of reshuffling, led by two big hospital consolidations this summer. We’ve also seen the rise of new products and services like private health exchanges. Look for this trend to continue in 2014 resulting from healthcare regulations.

3. “Acqui-hiring”

“Acqui-hiring” refers to recruiting a team of employees by buying a company. This is often the easiest way to attract top talent. For example, under CEO Marissa Mayer’s leadership, Yahoo! has acquired 30 companies for their technology as well as for their talented engineers. With their latest acquisition of PeerCDN, Yahoo brought on three new engineers. Other recent acquired companies like EvntLive and Ptch will be shut down, with the employees joining Yahoo’s team.

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Chinese firm Shuanghui International Holdings announced its intention to buy Smithfield Foods Inc for $4.7 billion. The total of the transaction, including debt, would be $7.1 billion.

That’s big news for M&A watchers in the food industry, an arena that has captured my attention since my firm managed the acquisition of shrimp specialist Empress International by the popular tuna brand, Chicken of the Sea

Shuanghui International Holdings owns Henan Shuanghui Investment & Development Co (000895.SZ), the largest pork producer in China. US-based Smithfield (SFD.N), is the world’s largest producer of pork, raising 16 million hogs a year.  It was founded in 1936 as a meatpacking plant in Smithfield, Va and earned $13.1 billion in revenue in 2012.

There are a couple of obvious reasons Shuanghui International is buying Smithfield: to support its growing middle class and to diversify its markets.

However, a key reason that’s not being addressed is Shuanghui International’s desire for vertical integration. To put it simply, the Chinese company is acquiring Smithfield for its talent.

The term “Acqui-hire” has been used to describe the practice of many technology companies acquiring small startup firms for their talented employees; for example, Marissa Mayer’s acquisition of small tech companies during her tenure as Yahoo’s CEO.

Buying a company for its talent is not a new concept and is a strategic approach to acquisition when there often is no other way to recruit these valuable team members.

For Shuanghui International, Smithfield is a global company that provides experience and talent the Chinese company cannot get anywhere else. Smithfield has people that understand how to manage an established company with multiple famous brands, including Armour, Eckrich and Farmland, in a commodity industry.

They have operational excellence and business experience. Shuanghui needs the western MBAs to manage and expand successfully in business into U.S. markets.

In addition, Smithfield has its own experience with acquisitions. The company expanded significantly by purchasing nearly 40 companies between 1981 and 2008. These acquisitions were transformative for the U.S. pork industry. If this transaction is approved, it likely will bring about another big change for the industry, one that Smithfield has experience in managing.

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