Cross-border M&A Helps Ireland’s Agri-food and Beverage Sector Protect Itself Against Brexit Impact

As Brexit looms, Ireland’s most important indigenous industry, its agri-food and beverage sector, has been embracing M&A as a way to protect itself from the potential impact of increased tariffs.
The sector’s deal activity is incredibly buoyant and opportunities abound for businesses who are keen to expand, adapt or diversify.

Exports reaching record figures

Food and drink exports from Ireland in 2017 reached a record US$15.1bn, representing the eighth consecutive year of growth. Some 35 percent of these exports went to the UK, indicating that Ireland is still hugely dependent on the British market for its agri-food and beverage exports. However, the dependence is falling slightly, down from 45 per cent in 2015 and 37 per cent in 2016. At the same time, cross-border deals involving firms from the UK, other EU countries and indeed even further afield are making up a larger proportion of the M&A activity within the sector.

The dark cloud of Brexit looms

Operators in the agri-food and beverage sector in Ireland are rapidly coming to terms with the impact that Brexit could have on their exports. In fact, the Irish Prime Minister, Leo Varadkar, is also preparing for the ‘worst-case scenario’ of a no-deal Brexit. In March 2018 he announced that Dublin could increase state aid to the sector should the UK fail to negotiate a trade deal with the EU.

Varadkar explained: “When we have a better idea of what Brexit will really mean and what it will look like in terms of the next trading relationship, we will be able to provide loans and perhaps even state aid to companies to allow them to change what they do in order that they appeal to new markets.”

In the meantime, those business that can are already deep into their diversification strategies which, in most situations, involve buying businesses.

Diversification through acquisition

There are a number of reasons why business owners in the agri-food and beverage sector have been looking to make deals with businesses outside the UK. At a basic level, there are increasingly competitive market conditions within the UK for Irish products. At the same time, the falling value of Sterling and its volatile nature following the Brexit vote in 2016 has added to the need for Irish business owners to look further afield for their potential export markets.

Not least is the ominous potential for a ‘no deal’ Brexit, in response to which the World Trade Organisation is likely to impose stiff tariffs on exports from EU countries to the UK.

Although there was a brief slowing of buying and selling business activity in the immediate aftermath of the Brexit vote, while dealmakers took a ‘wait and see’ approach, M&A activity is now extremely healthy. An abundance of cash among both private equity and trade buyers is helping things along, while the need to cushion the potential impact of Brexit further adds to the desire among business owners in Ireland to grow and diversify through acquisition.

Irish meat businesses have been central to the move towards a greater number of cross-border deals. Ireland’s ABP, has purchased Linden Foods, a meat processor based in the UK and several processing firms based in Poland over the past couple of years. Meanwhile, Ireland’s Dawn Meats entered into a deal with the UK’s Dunbia to service the UK market, while purchasing its Irish processing operations.

The beverage sector is also extremely active in the cross-border M&A market at the moment as the appetite for Irish Whisky, in the US and Asia in particular, goes from strength to strength. Hijos de Rivera, a Spanish drinks giant bought a stake in a brewing firm owned by Carlow Brewing, while Bacardi purchased part of Teelings Distillery, for example.

Within the prepared foods and food service sector there has also been a healthy amount of international buying and selling going on. Mayfair Equity Partners bought a stake in Promise Gluten Free, based in Donegal, for US$120m. Kerry Group’s CEO, Edmond Scanlon, has been outspoken about the firm’s ability to spend up to US$1bn on further acquisitions in the coming year, partly as a means to protect itself from the impact of Brexit.

Scanlon told the FT: “We have to be the masters of our own destiny here and prepare for the worst. We think it’s the prudent thing and the right thing for an organisation of our size to make sure we’re not caught offside.” Kerry has already successfully reduced its exposure to, and reliance on, the UK export market through its involvement in a number of international deals.

Adapt and survive

It seems that adaptability will be the key for Irish agri-food and beverage operators who want to ride out the Brexit storm. Even with a good Brexit deal, reducing dependency on exports to the UK is no bad thing and buying businesses that help them to do just that has become the go-to strategy for much of the industry.

If you have an Irish agri-food or beverage business and an willingness to expand your reach and diversify your offering, buying a business in the UK or further afield is an effective way to achieve this. Buying a UK business could help you to avoid potential tariffs while maintaining your exposure to UK markets.

Alternatively, selling a stake in your businesses to an international investor can help to mitigate the impact that Brexit may have on your agri-food and beverage business. This approach can allow you to flourish and grow while retaining control over your operations.

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