Goodfella’s was bought by Nomad for £200m

Levels of UK food and drink dealmaking slumped to their lowest since 2014 in the first quarter, but the environment remains conducive for more M&A in the sector, according to a Grant Thornton report.

The quarterly M&A report showed just 36 deals involving a UK/Irish acquirer and/or target were sealed in the first three months of 2018, a fall of 28% on the previous quarter.

Total declared deal value in the quarter was just £710m - the lowest sum in the past six quarters - with the largest two deals the £211m Total Produce paid for a 45% stake of US-based Dole Food Company and Nomad Foods buying Goodfella’s for £200m.

This fall in activity comes on top of a similar first quarter slump in 2017, which saw a year-on-year fall of 28% to 41 transactions.

However, total deal volumes for 2017 were still up on 2016, at 206 compared with 202, while a number of mega-deals including Unilever’s £6bn spreads sale to KKR and the £3.7bn merger of Tesco and Booker sent values up to £21.4bn.

Grant Thornton head of food and beverage Trefor Griffith said there was no reason 2018 would not follow the pattern of last year as the drivers of industry M&A remained compelling. “It would be easy to blame Brexit for the lower deal volumes in the first quarter, but there does not seem to be any increased nervousness or drop-off in terms of underlying activity,” he said. “All of the drivers for consolidation are still there. From an investors perspective food and drink remains a defensive area in what is clearly an uncertain and turbulent period.”

The continued uncertainty around Brexit and the trade arrangements the UK eventually reaches with the EU remains an issue, Griffith concedec, but he argued potential acquirers could take a longer-term view given the significant consumer base in the UK.

Another potential pressure on the industry is consolidation within the retail space, particularly the likely impact of the shock Sainsbury’s and Asda tie-up.

“The uncertainty around supermarkets is an issue, but ultimately that is also going to drive consolidation as well because if all the suppliers are being forced to reduce prices, the only way they can afford to do that is by consolidating themselves,” he said.

The report notes interest remains strong from private equity investors, with 10 transactions (27.8%) having a private equity angle in the quarter up from 22% of deals in 2017.

Domestic deals represented 58% of the activity in the quarter, which was a slight softening of cross-border activity compared with the 52% of deals last year.

Demand remained strong for high-growth consumer brands, particularly in the healthy and premium snacking space - with investments in Burts Chips, Primal Pantry and Meridian Foods owner 3V Group.

Investment also continued in the pet nutrition space - added to last week by Nestlé’s acquisition of

The report suggests the space remains ripe of consolidation given it remains an “immature and fragmented market” in the UK.