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?​

 

The first four months of 2024 have been busy and profitable when it comes to mergers and acquisitions in the food and beverage sector. There’s 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?​

 

The 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, what’s the reason for this?

 

Despite the recent easing of market conditions, economic, environmental and geopolitical​ challenges are still putting strain on the food and beverage industry. This is believed to have suppressed larger transactions​, with only 4.7% of deals from this first tertial (T1) above 50m GBP in enterprise value, and none surpassing £100m GBP.

 

Italian food group, Newlat, recently halted discussions for its acquisition of Princes, citing the “challenging market environment​” in the UK as its reason.

 

In fact, overseas buyer activity declined​ 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 businesses​, 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.

 

“Private equity deals are expected to pick up when financial conditions ease,” explains Lynch. “There is currently a lot of pent-up demand from financial buyers, with dry powder at record-high levels of $2.59tn globally.

 

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