PAI Partners bought PepsiCo’s juice brands

Food and drink M&A volumes remained relatively subdued in the third quarter as mounting headwinds constrained dealmaking in the sector.

The quarterly food and beverage M&A report for Grant Thornton revealed deal numbers had stayed flat in the three months to the end of September, with 32 transactions announced or completed compared with 33 in the second quarter.

Both quarters were down considerably on the first quarter of 2021, when 63 deals were announced – making it the busiest quarter for transactions since 2017.

Grant Thornton said the flat deal numbers in the latest period could still reflect a hangover from the spike in activity in the first quarter. But it also suggested current challenges – including staff shortages, input cost inflation, concerns over consumer confidence and a lack of clarity on post-Covid earnings – had held back activity.

“There are clearly lots of issues the industry has been dealing with over the past six months and that has been a big factor behind modest activity,” said GT head of food and beverage Trefor Griffith.

However, he pointed to strong private equity activity as proof investors remain “very comfortable with the more medium-term expectation for the sector”.

Quarter-on-quarter reported deal value remained steady at £3.8bn, with the three largest completed deals driven by PE.

These were led by PAI Partners’ £2.4bn acquisition of PepsiCo’s juice brands in North America and Sunray Investments Luxembourg’s £767m deal for Stock Spirits.

Of the 32 deals, 44% involved private equity buyer or seller, compared to a third in the second quarter.

“Private equity are set up to buy and sell business, so while the current climate has an effect on them they are looking to invest over three to five or seven years and so are clearly more comfortable with that time period,” Griffith said.

Activity was also dominated by international activity, with cross border deals accounting for 56% of activity compared to 48.5% in Q2. In particular, overseas investments into the UK rose to 44%, compared to 30% in Q2.

Griffith also suggested that more distressed deals might start getting done now the government support measures have been wound down. There were seven sector insolvencies in the third quarter compared to three in the second quarter.

“M&A could be driven by the need to reposition businesses,” he said. “All those companies that supply food service – particularly in city centre locations – will find the trade has changed in those locations and will have to realign with the new normal, which could mean buying and selling assets.”