News
M&A activity on the rise but big deals off the table
The second tertial of the year (T2) saw a 68.2% increase in the volume of deals (37 transactions) compared to the same period in the prior year. Deal value was also on the rise, up 49.1% to c. £400m compared to T2 2022.
More than 75% of deals had an estimated value of £10m or less, continuing a trend of lower value transactions experienced in T1 this year (80%) – only 8.1% of transactions were estimated to be above the £50m mark, falling below the five-year historic average of 13.9%.
Chilled food saw the biggest improvement, accounting for 21.6% of M&A activity in T2 2023, rocketing up from just 2% in T2 2022 and 6.1% in T1 2023. Beverage deals took the top spot with 27% of deals.
Resilience and defensive characteristics
Mark Lynch, partner at Oghma Partners, said the deal volume during the reported period was a clear sign of the resilient and defensive characteristics of the food and beverage M&A sector in the face relentless market challenges.
“Whilst 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,” Lynch added. “A challenging funding and trading environment with the added uncertainty of whether, or not, the UK will dip into recession provides the economic backdrop.”
State of the food and drink industry webinar
The last few years have seen a multitude of events shake the food and drink sector to its core, causing change to ripple through everything from sourcing and supply chain, to R&D and consumer behaviour.
Here we examine the state of the manufacturing industry, including exclusive new insights from Aptean’s Food and Beverage 2024 Trends and Outlook report, and assess how these drivers are influencing trends, investment in technology and business priorities now and in the future.
Sign up for Food Manufacture's State of the Industry webinar now.
Lynch noted that the increase in deal volume and low value deals were the result of a surge in ‘distressed M&A activity’, with 27% of T2 deal being an acquisition out of administration – up from 14.9% in 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,” he continued. “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).
Challenges for meat-free businesses
“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.”
Bolt on activity was relatively prevalent during the reported period, with Lynch highlighting Britvics acquisition of Jimmy’s Iced Coffee, Richardson’s acquisition of Ragleth and Esperson acquiring Iceland Seafoods.
“These types of transactions can often provide ‘easy reach’ synergies which encourage the acquisition activity in the first place,” said Lynch. “Frequently these synergies will be at the back office and purchasing level, sometimes manufacturing and less prevalent and, arguably, harder to obtain, sales synergies.
“Our outlook for the remainder of the year continues to be positive, at least from a deal volume standpoint. The recovery we have seen 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.”
