Food & Beverage M&A activity reaches highest deal volume since 2016

The latest UK food and beverage sector M&A report from corporate finance house, Oghma Partners, shows that there was a continued increase in deal activity.

For the first four months of 2024, there has been an increase in the volume of deals compared to the same period in the prior year. Deal value has decreased by 31.7%, however, excluding the Glanbia Cheese transaction from T1 2023 deal value actually increased by 107.6%.

M&A in the UK food and beverage sector reached its highest deal volume since T1 2016. However, total deal value remained low compared to the historic average. Despite the recent easing of market conditions in the UK, macroeconomic headwinds have lingered. This has stifled larger transactions, with only 4.7% of deals from this tertial above £50.0m in Enterprise Value, and none surpassing £100.0m. For example, Italian food group, Newlat, recently halted discussions for its acquisition of Princes, citing the “challenging market environment” in the UK as its reason.

The rise in deal volumes paired with lower deal values is also due to continued distressed M&A activity. Inflation and high interest rates have created a difficult trading and funding environment for smaller businesses, with acquisitions out of administration accounting for 14.0% of deals in this tertial.

One of the most notable developments in this tertial has been the reduction in private equity deals, accounting for 9.3% of deal volume. Stubbornly high interest rates have decreased financial buyers’ ability to transact, with those that have occurred set at lower valuation ranges.

Overseas buyer activity also declined to 11.6% of deal volume due to geopolitical and economic uncertainties, prompting acquirers to focus domestically. On the other hand, M&A activity amongst UK corporate buyers has increased significantly. Reaffirming that strategic M&A is still a priority, as trade buyers have continued to try to access synergies through bolt on deals.

Oghma Partners noted that approximately, 75.0% of deals had an estimated value of £10.0m or less as there was a continued absence of middle to higher market deals. Only c. 5.0% of transactions were above £50.0m and there were no deals above the £100.0m mark for the tertial.

UK corporate buyers drove most of the tertial’s M&A activity, accounting for 79.1% of deal volume (34 deals) compared to 60.3% for T1 2023. This was met with a reduction in the number of deals completed by financial and overseas buyers, with them accounting for 9.3% and 11.6%, respectively.

The distribution sector saw one of its most active tertials, with a particular focus on distributors supplying to foodservice including the acquisitions of Vegetarian Express and Total Foodservice Solutions. Similar to previous periods, both the beverages and grocery/confectionery sectors also accounted for a large proportion of deal activity.

The alcoholic beverages sector continued to be active, with almost all beverages deals involving the acquisitions of breweries of craft beer and distillers of branded spirits. Similar to last year, this sector was also responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for 33.3% of the tertial’s deals out of administration.

Mark Lynch, Partner at Oghma Partners, said that looking forward, Oghma expects deal volume to remain robust and deal values to pick up gradually as market conditions improve. The start of 2024 has seen the UK economy exit the recession it entered in the second half of 2023, and both consumer and business confidence have risen substantially since last year. In March, the inflation rate fell to its lowest level since September 20213, food price inflation has matched this pattern, marking its 12th consecutive month of easing rates. The BoE has kept interest rates steady at 5.25% since September 2023, with anticipated rate cuts in the latter half of 2024.

“The combination of these factors creates a positive outlook for M&A activity in the UK food and beverages sector, however, it might take time for deal values to pick up again to their pre-pandemic levels,” Lynch noted. “In addition to this, we anticipate divestments to be a large source of M&A activity, as companies look to refine their portfolios and carve out under-performing or non-core assets. Private equity deals are expected to pick up when financial conditions ease.”

Lynch believes there is pent-up demand from financial buyers, with dry powder at record-high levels of $2.59tn globally.

“On the other hand, acquisitions made by overseas buyers may take a lot longer to return as global conflicts, supply chain issues and worldwide elections taking place this year will continue to create geopolitical and economic uncertainty,” he concluded.

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