Grupo Bimbo acquired St Pierre in October 2022

Food and drink deals ticked up in the fourth quarter of 2022, boosting hopes dealmaking will rebound in 2023 after economic turmoil effectively froze the market last year.

The latest UK food and beverage M&A report by Grant Thornton found 33 deals were completed in Q4 – a notable rise on the third quarter’s total of 19.

After a strong start to 2022 total deal volumes stood at 116 for the year, though a marked slowdown in deals following Russia’s invasion of Ukraine and subsequent inflationary spike and macroeconomic concerns meant overall volumes were down 30% compared to 2021.

Deal value was also notably back up in the quarter to £1.12bn, boosted by the Saria’s £625.7m acquisition of Devro and Grupo Bimbo’s £300m swoop for St Pierre.

However, there was also a slowdown of private equity investment as debt became more expensive, with just 38 deals (33%) with PE involvement, compared with 45% in the previous year.

GT said the cost of living crisis dulled private equity’s interest in consumer-facing assets. Then, additional economic volatility, caused by Liz Truss’s September mini-budget, led to a slow down in investment across most sectors and a rise in the cost of debt.

But Grant Thornton suggested the Q4 uptick represented “green shoots of recovery”, albeit from a low base.

“On the whole, 2022 was a very difficult time to try to transact food and beverage businesses, but the outlook does feel more positive,” said GT head of consumer Trefor Griffith.

He pointed to stronger than expected retail trading over Christmas, an easing inflationary picture and some of the economic indicators being better than previously feared.

“There are definitely plenty of people out there who wanted to sell businesses or raise funds over the last couple of years that haven’t been able to because of market conditions and so are effectively sat there waiting for market conditions to improve,” he said. “There is going to be a catch up at some stage.”

The report suggests a rebound in activity will not ”necessarily require a powerful economic bounce back” but simply stability and visibility on underlying earnings.

Griffith also suggested private equity investment could return if macroeconomic volatility eases.

“Debt funds and private equity have already raised a wall of debt, which they are going to have to spend at some stage,” he said. ”It will just likely take some time to realign shareholder value expectations with with what buyers are willing to willing and able to to pay.”

In 2022 as a whole, international buyers accounted for just over a quarter (27%) of all deals, similar to 2021 (26%).

Griffith said caution amongst international buyers had been a trend since the 2016 Brexit vote and had been exacerbated by global caution around European economic prospects given the situation in Ukraine.

Two companies were acquired from administrations in Q4 (compared to five in Q3), including Parakore’s December acquisition of horse feed specialist The Pure Feed Company.

There have been a number of acquisitions from food and drink assets in administration so far in 2023 and Griffith expects that trend to continue.

“There will inevitably be businesses that will run into trouble and we are beginning to see a number of accelerated deal processes in the market where there is a need to get a deal done,” he says.