M&A activity reveals positive news for food and beverage industry
From the increasing impact of climate change to geopolitical unrest, the food and beverage industry across Europe has been under immense strain in recent years. However, a recent report from Oghma Partners, looking at the UK food and beverage sector mergers and acquisitions (M&A), has shown a rise in deal activity, indicating renewed confidence in the market and the economy overall.
“The pick-up in activity we are seeing in the food and beverage sector is being reflected elsewhere,” Mark Lynch, partner at corporate finance advisory firm, Oghma Partners, told FoodNavigator. “In Q1 global deal value was up a reported 38% and in Europe 58%. This reflects the more stable interest and economic environment in our view.”
What does M&A activity tell us about the F&B sector?âThe first four months of 2024 have been busy and profitable when it comes to mergers and acquisitions in the food and beverage sector. Thereâs been a marked increase in the volume of deals, compared with the same period in 2023. In fact, the sector actually reached the highest deal volume since the same period in 2016.
And deal value is up too, though confusingly, initial figures imply otherwise. Let me explain…
On the face of it, overall deal value decreased by 31.7 in the first four months of 2024. But this figure is skewed by one single transaction, the Glanbia Cheese transaction from the first part of 2023, which completed at a whopping 304.6 million GBP. When this transaction is removed, we find that overall deal value actually increased by 107.6%. This is great news for the food and beverage industry, but what does it mean in the long term and how confident can the industry be about its financial future?
The confectionary sector continued its active trend in M&A, accounting for a large proportion of the deal activity, alongside  beverages and grocery. GettyImages/Andy RobertsWhat do M&A deals in the food and beverage industry tell us?âThe increased number of mergers and acquisitions in the food and beverage industry will certainly be cause for optimism. However, as with everything, cautious optimism is likely necessary.
Total deal value, though beginning to rise, is still lower than the historic average. So, whatâs the reason for this?
Despite the recent easing of market conditions, economic, environmental and geopoliticalâ challenges are still putting strain on the food and beverage industry. This is believed to have suppressed larger transactionsâ, with only 4.7% of deals from this first tertial (T1) above 50m GBP in enterprise value, and none surpassing ÂŁ100m GBP.
Italian food group, Newlat, recently halted discussions for its acquisition of Princes, citing the âchallenging market environmentââ in the UK as its reason.
In fact, overseas buyer activity declinedâ to 11.6% of deal volume. This is again believed to be due to geopolitical and economic uncertainties, prompting acquirers to focus on their domestic markets. By comparison, M&A activity amongst UK corporate buyers has increased significantly, reaffirming that M&A is still a priority for businesses.
Inflation and high interest rates have created a particularly difficult trading and funding environment for smaller businessesâ, with acquisitions out of administration accounting for 14% of the deals.
One of the most notable developments is the reduction in private equity deals, accounting for just 9.3% of deal volume. However, this decline is expected to be short lived as the economy improves.
âPrivate equity deals are expected to pick up when financial conditions ease,â explains Lynch. âThere is currently a lot of pent-up demand from financial buyers, with dry powder at record-high levels of $2.59tn globally.
The alcoholic beverages sector was also responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for 33.3% of the deals out of administration. GettyImages/Nicolas MicolaniWhat do M&A in T1 2024 tell us about food and beverage trends?âBoth the beverage and grocery, and confectionary,â sectors continued the active trend they set in 2023, accounting for a large proportion of the deal activity. This shows significant interest in these sectors and it will be interesting to see if that trend continues later into 2024.
The alcoholic beveragesâ sector, in particular, continued its active streak, with almost all beverage deals involving the acquisitions of breweries of craft beer and distillers of branded spirits. Unfortunately, also similar to T1, this sector was responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for 33.3% of the deals out of administrationâ.
This trend of high activity in food and beverage M&A is expected to continue as the year progresses.
âLooking forward, we expect deal volume to remain robust and deal values to pick up gradually as market conditions improve,â says Lynch. âThe 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.â
Furthermore, the value of deals is expected to increase, albeit slowly.
âIn March, the inflation rate fell to its lowest level since September 2023, food price inflation has matched this pattern, marking its 12th consecutive month of easing rates,â says Lynch. âThe 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.â
However, acquisitions made by overseas buyers may take longer to return.
âGlobal conflicts, supply chain issues and worldwide elections taking place this year will continue to create geopolitical and economic uncertainty,â says Lynch.
