Black Sheep Brewery

Distressed activity in the brewing and plant-based industries drove a rise in 2023 deal volumes

M&A activity in food & drink picked up in the final months of 2023 thanks to a combination of pent-up demand and distress in the plant-based and craft brewery sectors, according to a new report published this morning.

Deal volumes almost doubled year on year in the four months to 31 December, up 92% to 46 transactions, while value nudged up 5% to £1.2bn, advisory firm Oghma Partners found.

It meant volumes for 2023 as a whole rose 57% compared with 2022, with 116 deals versus 74 in the year before. Values also increased 20% year on year to £2.1bn.

However, 75% of the deals in 2023 had an estimated value of £10m or less, up from 69% in 2022, with both years experiencing a high volume of low-value deals compared with the five-year average between 2017 and 2021 of 57%.

And only 8% of transactions were estimated to be above the £50m mark last year, falling well below the five-year historic average of 15% as inflationary pressures and the higher cost of debt suppressed the deal market in 2022 and 2023.

“The key issues that impacted M&A in 2022 dragged over into the start of 2023,” said Oghma partner Mark Lynch.

“The increase in activity in 2023 partly reflected pent-up seller activity and, in addition, the sad bonus of a large numbers of businesses acquired out of administration.”

Oghma highlighted troubles in the vegan category, with Meatless Farm and Plant & Bean being rescued from administration during 2023.

“The meat-free industry has faced a triple-whammy: a cost of living crisis turning consumers away from higher-cost meat-free products, cost inflation and much-reduced investor appetite to provide follow-on funding,” Lynch added.

“We suspect the meat-free shakeout will continue this year. However, fewer players with greater scale should be able to provide a focused marketing effort to help re-engage the consumer and retailers in due course. The long-term factors that drove excitement in the sector in the first place are unlikely to go away – those businesses and brands that survive this shakeout will emerge the winners over the longer term in our view.”

Brewers also struggled last year, with 25% of the deals struck from administration coming from the sector, including Black Sheep and Purity.

Overseas buyers were responsible for 23% of all deal volumes in 2023, which is slightly down from 27% in 2022, while financial buyers accounted for 19% of volumes, up from 14%.

Lynch doesn’t expect volumes to pick up dramatically in 2024 but is forecasting an increase in deal value.

“Financing terms have stabilised or are easing, and valuation expectations have become more modest,” he said.

“The combination of these two factors, combined with an easing input cost environment, should provide a more palatable cocktail for success in 2024.”