Mergers and buyouts among food manufacturers are gaining steam, but there is one complicating factor: brands are fading, and the biggest consumer food companies are built on brands.

By Dan Mitchell, contributor

With improved access to credit and mountains of capital ready to deploy, private-equity and strategic buyers are hot to snap up food companies. Thanks to their stable cash flows, food firms are generally safe bets, especially for highly leveraged private-equity deals where debt repayment is a priority.

There is one complicating factor, however: brands are fading, and the biggest consumer food companies are built on brands. So while there has been buzz about possible buyouts of, for example, Sara Lee (SLE), ConAgra (CAG), and J.M. Smucker (SJM), there has been no reported movement toward a deal for any of them.

Even before the recession, private-label (or store brand) products were ascending, taking market share away from branded products. The downturn has only made things better for private labels and worse for many brands as consumers have sought out cheaper fare.

In many cases, those consumers have discovered that private-label products are just as good as the branded ones, or at least close enough. For that reason, some analysts believe that private labels -- which according to the research firm Packaged Facts now make up nearly a fifth of the grocery market, up from just 14% in 2005 -- will continue to eat away at certain brands even after the economy picks up. Once viewed as commodities, private-label products are developing a "brand" of their own. They represent an $87 billion market, Packaged Facts says.

This raises several questions for both strategic and private-equity investors. Should would-be acquirers wait to see how the recovery might affect sales of private-label products? Which brands are most vulnerable to the rise of private labels? Not all brands are the same – many will remain strong for years to come. More