UK Food and Beverage Sector M&A Deals Drop 29 Percent This Summer

UK Food and Beverage M&A market activity from the period of May to August saw a 29% decline in deal volume when compared with the same period last year, according to a report from corporate finance house Oghma Partners.

Oghma’s analysis recorded 22 deals for the period, with a corresponding overall estimated deal value of about £270 million ($3.1 million) compared to £3.9 billion ($4.5 billion) in the prior year period, a more than 90% decline.

Around 60% of deals had an estimated value of £20 million ($22.8 million) or less.

Overseas buyers accounted for 36.4% of deal volume, which is in line with the five-year average of 33%, according to the report. Notable deals included Solina’s acquisition of Zafron Foods and Lotus Bakeries’ acquisition of Peter’s Yard.

Activity from financial buyers dropped off significantly, accounting for 9.1% of total deal volume for the period.

Grocery/confectionery was the most active category for the period, with the most notable deal being Premier Foods’ acquisition of The Spice Tailor, marking the company’s first acquisition since 2016.

Mark Lynch, partner at Oghma Partners, said, “Year to date August 2022, we estimate that the number of UK F&B deals totaled 50 in the period vs. 62 in the prior year, an overall decline of 20% by volume, a decline that accelerated in the second tertial. The more dramatic story is the YTD deal value decline of 90% with an equal decline in T1 and T2. The decline in activity is similar to that seen in 2020 when the full impact of COVID on deal activity was noted. However, in that year, there was a strong recovery in the final four months of the year as COVID challenges had been faced and corporate activity got back closer to normal.

“Particularly absent in the first eight months of the current year has been any sizeable transactions. In 2021, for example, there were six deals with values ranging from £200 million to £2 billion, with the average deal size of this group at £1.1 billion. The decline in deal activity, we believe, is related to a number of factors."

The first of those factors is business uncertainty, Lynch said.

"The trading environment is difficult," he said. "Any food and beverage companies have had to put through sharp price increases with more to follow in the coming months. Profitability is under pressure and the outlook uncertain, putting off buyers and sellers alike."

Debt availability and cost is another factor.

"It appears that liquidity is getting tighter, with banks less willing to lend, and the cost of debt is rising as governments seek to both fight inflation and fund expansionary fiscal budgets," said Lynch.

Finally, changing appetite for risk plays a role in the decline.

"A declining appetite for risk is seen in public markets via rising bond yields, a falling bond market and lower debt availability," he said. "Buyers’ changing appetite for risk is noted by increasing hurdle rates and lower valuations as a result.”