UK food & beverage M&A activity rises but absence of mid to high deals
The latest UK Food and Beverage Sector M&A report from Oghma Partners shows an increase in the volume of deals (37 transactions) compared to the same period in the prior year (up 68.2%) with deal value increasing by 49.1% to c. £400m.
Oghma believes the sector has shown its ‘resilient and defensive’ characteristics but while there has been a recovery in deal value, this has been from a very low base and the overall quantum value of transactions remains low.
A challenging funding and trading environment with the added uncertainty of whether, or not, the UK will dip into recession provides the economic backdrop. These factors have manufactured a significantly less favourable environment for larger transactions with 75.7% of deals having an estimated enterprise value of less than £10m.
Oghma’s outlook for the remainder of the year continues to be positive, at least from a deal volume standpoint. The recovery in activity is likely to be aided by easing food inflation both output and input. Consumer demand has remained steady and this helps provide re-assurance to buyers. As 2023 numbers are delivered and the outlook shifts to 2024, there may be more confidence amongst sellers to bring the larger deals to market.
Overseas buyers were responsible for many of the tertial’s deals, accounting for 24.2% of deal volume, which is in line with 2022 at 25%. The number of deals with a financial buyer increased compared to T2 2022, with 27.3% of buyers a financial buyer compared to 9.1% in T2 2022.
Equivalent to T1, the beverages sector was the most active with several niche producers changing hands. There were multiple deals in the beer market; with Breal Capital acquiring two microbreweries in Brew by Numbers and Black Sheep Brewer.
The chilled food space has been particularly active this tertial comprising of 21.6% of transactions compared with only 2.0% to the same period in the prior year and 6.1% in T1. Notably, chilled ready meals manufacturer Oscar Mayer was acquired by Pemberton Asset Management and fresh ingredients supplier Freshcut Foods was acquired by Flywheel Partners.
Mark Lynch, partner at Oghma Partners, noted that while there has been a recovery in deal value, this has been from a very low base and the overall quantum value of transactions remains low.
“A challenging funding and trading environment with the added uncertainty of whether, or not, the UK will dip into recession provides the economic backdrop. These factors have manufactured a significantly less favourable environment for larger transactions with 75.7% of deals having an estimated enterprise value of less than £10.0m,” he explained.
“Once again, the increase in deal volume and low value deals can also be explained by a surge in distressed M&A activity with 27.0% of T2 deals being an acquisition out of administration, up 14.9% from T1. Business models have been challenged by the rise in the cost of debt as well as the cost of raw materials combined with a more value focused consumer.”
Some notable acquisitions out of administration within T2 include the acquisition of Meatless Farm by VFC Foods and the acquisition of Plant & Bean by Heather Mills (VBites). Both deals highlight the concentration that is now going on in the meat free industry encouraged by the shrinking of the category and challenged business models of some of the businesses, Oghma noted.
“As usual, bolt on activity was relatively prevalent in the period. For example, Britvic acquired Jimmy’s iced coffee, Richardson Malting acquired Ragleth, and Espersen acquired Iceland Seafoods. These types of transactions can often provide ‘easy reach’ synergies which encourage the acquisition activity in the first place. Frequently these synergies will be at the back office and purchasing level, sometimes manufacturing and less prevalent and, arguably, harder to obtain, sales synergies.”
