Tropicana Plus 750ml range

PAI Partners acquired PepsiCo’s Tropicana and Naked brand

UK food and drink M&A activity remained well below pre-pandemic levels last year despite a booming first quarter.

Grant Thornton’s review of food and beverage M&A in 2021 found 165 deals were announced in the year, a slight uptick on the figure of 160 in 2020.

However, the activity remained short of the 200-plus deals seen in each of the preceding five years before Covid hit and saw the lowest deal volumes since 2013.

The fall comes despite the first quarter of 2021 posting the highest quarterly volumes for four years as activity slumped in the following nine months.

Grant Thornton head of food and beverage Trefor Griffith said the drop in activity after the first quarter was driven by caution surrounding mounting inflationary pressures, supply chain issues and difficulties around valuing businesses and splitting out Covid impacts.

“There were real challenges throughout the year to complete deals, because buyers couldn’t always get comfortable with the underlying figures being presented by sellers because of difficulties understanding normalised sales performance,” he said.

These issues are likely to continue to hamper deal volumes in the short-term, with Brexit potentially adding a further underlying headwind.

“Covid has effectively delayed the potential impact of some of the Brexit measures such as border controls and quotas, so we don’t yet know what the new normal looks like,” Griffith said.

Deal value in 2021 of £23.2bn was the highest since 2015 due to a number of mega-deals, including the acquisition of Morrison’s, Bain Capital buying Valeo and PAI Partners’ acquisition of PepsiCo’s Tropicana and Naked brands.

Valuations also continue be strong in in-demand sectors, such as spirits, plant-based and pet food which were three of the top four sectors for deals last year. Spirits accounted for 17% of transactions, plant-based 12%, meat 8% and pet food 6%.

Notably, private equity has become increasingly active in the sector, accounting for the highest proportion of deals in a decade last year at 42% amid slackening interest from trade buyers and PE’s strong cash position.

Although administration processes remain scarce, with just three industry administrations in the fourth quarter, distressed sales could also pick up as underlying pressures couple with government COVID support being withdrawn.

The report notes there were 36 voluntary liquidations in the sector in Q4 and this could spread to larger players in 2022.

“At some stage you are going to get some bigger players who will have to get investment as they are in financial distress,” he said.