M&A activity in the food and drink sector has reached its highest volume since 2016, according to a new report. However, despite this, deal value fell by 31.7 during the first four months of 2024 compared to the same period in 2023.
The latest edition of Oghma Partners’ UK Food & Beverage M&A Activity report, published every four months, found that just a quarter of deals in the sector were valued at over £10 million during the first four months of the year, while just 4.7 per cent of deals were worth more than £50 million and no deal passed the £100 million mark.
The food and drink sector has seen a high level of insolvencies over the past year, amid high inflation and interest rates, and Oghma Partners’ report found that 14 per cent of deals during the period were acquisitions out of administration.
79.1 per cent of deal volume (34 deals) involved UK corporate buyers, up from 60.3 per cent in the corresponding period last year. However, acquisition by financial and overseas buyers fell to 9.3 per cent and 11.6 per cent of deal volume, respectively.
However, excluding the acquisition of Glanbia Cheese by US firm Leprino in Q1 2023, deal value was actually up by 107.6 per cent during the first four months of 2024. Mark Lynch, partner at Oghma Partners, said that the value of deals should gradually increase as market conditions improve, with the UK exiting recession in 2024 and seeing inflation continue to fall.
Lynch commented: “In March, the inflation rate fell to its lowest level since September 2013, food price inflation has matched this pattern, marking its 12th consecutive month of easing rates. The Bank of England has kept interest rates steady at 5.25 per cent 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. In addition to this, we anticipate divestments to be a large source of M&A activity, as companies look to refine their portfolios and carve out under-performing or non-core assets.”
The report found that private equity deals had fallen, comprising just 9.3 per cent of transactions during the period, with the decline attributed to the impact of high interest rates on the ability of financial buyers to do deals. Lynch stated that improving financial conditions should result in improved private equity activity, with private equity firms estimated to be sitting on a record $2.59 trillion in dry powder globally.
However, he warned that “global conflicts, supply chain issues and worldwide election taking place this year” would continue to drive geopolitical and economic uncertainty, meaning that acquisitions by overseas buyers “may take a lot longer to return”.
Despite significant headwinds, M&A is still a key strategic priority for many UK CEOs
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