The food industry is ripe for consolidation now that the Federal Reserve is expected to cut interest rates in September.

According to Kevin Dreyer, co-CIO of Value at Gabelli Funds, lower rates generally stimulate M&A activity.

"One thing to note is that, as rates come down, that tends to lead to an upswing in M&A activity," Dreyer told CNBC on Friday, Aug. 23. “Food stocks have had a tough year — the consumer stretch, inflation has been biting them — they’ve been struggling with volume growth, but snacking has been a good area within food.”

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Mars Inc.'s recent acquisition of Kellanova ( K ) for $35.9 billion bodes well for the sector, Dreyer noted. The move reflects a strategic realignment, exemplifying how companies are looking to strengthen their positions in more profitable niches.

In October 2023, Kellanova ( K ), which has the global snacking segment, completed its separation from WK Kellogg Co ( KLG ) .

Read Also: Confectionery Giant Mars To Acquire Cheez It Parent Kellanova In $35.9B Deal

Campbell Soup Company ( CPB ) has also been active, recently acquiring Sovos Brands, Inc. , the maker of Rao's pasta sauce.

Dreyer sees Campbell Soup ( CPB ) as a company to watch, suggesting they could "end up following the ‘Kellogg-Kellanova playbook’."

Campbell Soup’s investor day is coming up in September. Expected the company to outline plans, which could further shape the landscape of the food sector.

As for which companies are attractive takeover targets, Dreyer cited his favorite mid-cap food stock: BellRing Brands Inc. ( BRBR ) , maker of Premier Protein shakes.

"Premier Proteins is growing mid-teens right now in an industry that is struggling to grow at all. We think they will continue to do great on their own, but somebody else may want to buy them," Dreyer said, highlighting the potential for BellRing Brands ( BRBR ) to be an attractive M&A target.

As M&A activity gains momentum, investors are advised to keep a close eye on potential deals that could reshape the industry landscape, providing new opportunities for growth and investment.

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