From the increasing impacts of climate change to geopolitical unrest, the food and drink industry across Europe has been under immense strain in recent years. However, a recent report by Ogma Partners examining mergers and acquisitions (M&A) in the UK food and drink sector showed an increase in deal activity, signaling renewed confidence in the market and the economy overall.
“The increased activity we’re seeing in the food and beverage sector is being mirrored in other sectors,” Mark Lynch, partner at corporate finance advisory firm Oguma Partners, told Food Navigator. “Global deal volume was reported to be up 38% in the first quarter, with Europe up 58%, which we believe reflects interest and a more stable economic environment.”
What does M&A activity tell us about the F&B sector?
The first four months of 2024 have been busy and lucrative when it comes to mergers and acquisitions in the food and beverage industry, with deal volume increasing significantly compared to the same period in 2023. In fact, the industry has reached its highest deal volume since the same period in 2016.
Transaction values are also rising, but confusingly, initial numbers suggest otherwise. Let me explain…
At first glance, the overall transaction value decreased by 31.7 in the first four months of 2024. However, this figure is skewed by his one deal completed for a whopping £304.6m, the Glan Via cheese deal in early 2023. When we remove this transaction, we see that the overall transaction amount actually increased by 107.6%. This is great news for the food and drink industry, but what does it mean in the long term and how confident can the industry be about its financial future?
The confectionery industry continues to see strong M&A trends, accounting for the majority of deal activity alongside beverages and groceries. Getty Images/Andy Roberts
What do M&A deals in the food and beverage industry tell us?
The increase in mergers and acquisitions in the food and beverage industry is certainly a reason for optimism. But as with everything else, cautious optimism will be needed.
Although deal volume is starting to increase, it is still below historical averages. So what is the reason?
Despite recent easing in market conditions, economic, environmental and geopolitical challenges continue to strain the food and beverage industry. This is believed to have discouraged larger deals, with only 4.7% of deals having an enterprise value of more than £50m and no deals exceeding £100m from this first tertiary deal (T1). was.
Italian food group Newrat recently called off talks to buy Princess, citing “difficult market conditions” in the UK.
In fact, the activity of international buyers decreased to 11.6% of the trading volume. This is also believed to be due to geopolitical and economic uncertainties, leading acquirers to focus on the domestic market. By comparison, his M&A activity among UK business acquirers has increased significantly, reaffirming that M&A remains a priority for businesses.
Inflation and high interest rates have created a particularly challenging trading and financing environment for SMEs, with acquisitions from administration making up 14% of transactions.
One of the most notable trends has been the decline in private equity deals, which accounted for just 9.3% of deal volume, but as the economy improves, this decline is not expected to last long.
“We expect private equity deal activity to pick up as financial conditions ease,” Lynch explains. “There is currently a lot of pent-up demand from financial buyers, with dry powder reaching record levels of $2.59 trillion worldwide.
The alcohol sector also saw a large share of distressed M&A activity, as alcohol manufacturers accounted for 33.3% of uncontrolled transactions. Getty Images/Nicholas Mikolani
What does T1 2024 M&A tell us about food and beverage trends?
The beverages, food and confectionery sectors continued the active trend they set in 2023, accounting for the majority of deal activity. This indicates significant interest in these sectors and it will be interesting to see if this trend continues into the second half of 2024.
The alcoholic beverage sector in particular remained active, with nearly every beverage deal involving the acquisition of a craft brewery or branded spirits distillery. Unfortunately, and again similar to T1, this sector was responsible for the majority of distressed M&A activity, as alcoholic beverage manufacturers accounted for 33.3% of uncontrolled transactions.
This trend of strong food and beverage M&A activity is expected to continue this year.
“Looking forward, we expect transaction volumes to remain solid and to gradually increase in value as market conditions improve,” Lynch said. “The UK economy is expected to emerge from the recession it entered in late 2023 at the start of 2024, with consumer confidence and business confidence having increased significantly since last year.”
Furthermore, transaction values are expected to increase, albeit gradually.
“In March, inflation fell to its lowest level since September 2023, with food price inflation also matching this pattern, leading to 12 consecutive months of easing interest rates,” says Lynch. “The Bank of England has kept interest rates unchanged at 5.25% since September 2023, with a rate cut expected in the second half of 2024. The combination of these factors has brightened the outlook for M&A activity in the UK food and drink sector, although it may take some time for deal values to recover to pre-pandemic levels again.”
However, if the item is acquired by an overseas buyer, it may take longer to return the item.
“Global conflicts, supply chain issues and global elections this year will continue to create geopolitical and economic uncertainty,” Lynch said.
