M&A activity in food and drink has picked up in 2024 as market conditions continued to ease, with deal numbers hitting their highest levels since 2016, according to a new report.
Deal volumes increased 30% to 43 transactions in the first four months of the year, data from corporate finance firm Oghma Partners showed.
Values declined by 32% year on year to £310m, but more than doubled when excluding the early 2023 sale of the Glanbia cheese joint venture to partner Leprino Foods.
Oghma said that despite the recent easing of market conditions in the UK, macroeconomic headwinds had lingered, stifling larger transactions. Only 4.7% of deals from the four-month period were above £50m in enterprise value and none surpassed £100m.
The firm added the well-publicised challenges Mitsubishi had faced in its attempt to sell Princes highlighted the ongoing difficulties in food and drink M&A, with Italian food group Newlat halting talks in February because of the “challenging market environment” in the UK.
Approximately 75% of deals had an estimated value of £10m or less, with a continued absence of middle to higher market deals.
Stubbornly high inflation and interest rates created a difficult trading and funding environment for smaller businesses, with acquisitions out of administration accounting for 14% of deals in the period.
A reduction in private equity deals remained a theme in 2024, accounting for just 9.3% of volumes this year so far.
Overseas buyer activity also declined to 11.6% of deal volume as a result of geopolitical and economic uncertainties, prompting acquirers to focus domestically.
On the other hand, M&A activity among UK corporate buyers increased significantly, making up 79.1% of deals, compared with 60.3% in the first four months of 2023.
“Looking forward, we expect deal volume to remain robust and deal values to pick up gradually as market conditions improve,” Oghma partner Mark Lynch said. “The start of 2024 has seen the UK economy exit the recession it entered in the second half of 2023, and both consumer and business confidence have risen substantially since last year.”
He added that a combination of inflation easing significantly and anticipated cuts to interest rates in the latter half of 2024 created “a positive outlook” for M&A activity in the UK food and beverage 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.
“Private equity deals are expected to pick up when financial conditions ease. There is currently a lot of pent-up demand from financial buyers, with dry powder at record-high levels of $2.59 trillion globally. On the other hand, acquisitions made by overseas buyers may take a lot longer to return as global conflicts, supply chain issues and worldwide elections taking place this year will continue to create geopolitical and economic uncertainty.”
The distribution sector was one of the most active in 2024, with a particular focus on distributors supplying to foodservice, including the acquisitions of Vegetarian Express and Total Foodservice Solutions.
Similar to previous periods, both the beverages and confectionery sectors also accounted for a large proportion of deal activity so far in 2024.
The alcoholic beverages sector continued to be active, with almost all drinks deals involving the acquisitions of breweries of craft beer and distillers of branded spirits. Similar to last year, this sector was also responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for 33.3% of the period’s deals out of administration.
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