Pent-up M&A demand in the food and drink sector could lead to a spike in deals in the autumn, after post-Brexit uncertainty weighed on activity in the second quarter.

Total deal volume in the industry was down 20% on a strong first quarter and 25% year on year, with 44 transactions recorded from April to June compared with 55 in January to March, according to the latest ‘Bite Size’ M&A analysis by Grant Thornton.

Of the 44 deals, 20 were concluded in April, 14 in May and just 10 in June as the referendum loomed. Total disclosed deal value for the quarter was £2.88bn, but this was heavily skewed by the £2bn sale of Peroni and Grolsch to Asahi.

Trefor Griffith, head of food and beverage at Grant Thornton, said levels of enquiries had picked up since 23 June, with the summer being “unusually busy”.

“Our pipeline is stronger now than it was last year so we haven’t seen any negative effects of Brexit,” he added. “There seems to have been a lot of pent-up demand pre-referendum.”

He expects M&A activity to be strong in the autumn driven by a weak pound making UK assets more attractive, European businesses looking to buy or build a base to continue to serve the UK and the delay to Article 50 being invoked.

“It will be more than two years at least before we actually exit and the new world takes grip - and for a lot of people that is too long to wait to come to market. Food is a defensive stock: consumers will continue to eat, smaller businesses will continue to innovate strongly and become attractive to bigger companies and there is still a lot of private equity money out there to be spent.”

However, Griffith cautioned that volatility still had the potential to put off future food & drink investment, with concerns about stability of bank lending, rising input costs and unrealistic valuation expectations all stumbling blocks to deals.

“If the banks have a major wobble, there could be less debt available to fund M&A transactions for private equity and trade. And commodity prices are likely to rise significantly when inputs are renegotiated next year, which will put pressure on margins. Overall indicators are very positive but there are still unknown elements that are likely to become more prevalent later this year and through to 2017.”

The Grant Thornton report added that the food and drink sector remained attractive to overseas buyers, but there had been some softening in cross-border M&A activity.

In 2014, the ratio of domestic to cross-border deals was 51:49, but dropped to 54:46 in 2015. In the first half of 2016, the ratio stands at 63:37. “The impact of uncertainty regarding Brexit on Asian and other overseas buyers may be part of the reason for the decline,” Griffith said. “Historically, the UK has been seen as a stable and open market. The current state of volatility – with sterling weakening, political turmoil and a possible recession looming - may put off future investment until there is greater clarity on the terms of future trade with the EU.”