Landmark deals such as the combination of Greencore and Bakkavor and the merger of Kingsmill and Hovis buoyed ongoing optimism in food & drink M&A activity despite momentum slowing in the third quarter.
Deal volumes softened slightly in Q3 from the highs of the previous quarter, the latest M&A report from professional services firm Grant Thornton showed.
Numbers fell 6% quarter on quarter to 49 transactions, but were still above the trailing average of 45 deals and ahead of levels seen in Q4 2024 and Q1 of this year.
Nicola Sartori, Grant Thornton head of consumer industries, said market sentiment had tempered after a bumper Q2, but remained “resilient and cautiously optimistic”.
“While the slight reduction in activity reflects a more measured tone in the market, the persistence of strong domestic deal flow, combined with renewed interest in overseas expansion, reinforces the momentum within the sector,” she added.
Alongside the Greencore/Bakkavor and Kingsmill/Hovis deals, Sartori noted the importance of the upcoming IPO of Princes Group as a further confidence boost for the industry.
“Princes is actively pursuing a robust pipeline of tangible acquisition opportunities, having identified both short-term and long-term targets aimed at unlocking new geographies, product categories and technical capabilities,” Sartori said.
“This could be a positive sign for the sector if the IPO goes well. It may boost confidence among other food and beverage companies thinking about going public and might spark a wave of optimism in the sector and make IPOs a more attractive option for business owners and private equity firms looking to exit.”
Despite the cautious optimism in M&A, macroeconomic uncertainties, cost inflation and regulatory complexity continued to influence deal pacing and valuations, Sartori added.
“The F&B sector is dealing with significant inflation, resulting in trade buyers prioritising synergies, vertical integration and real strategic rationale. With the sector grappling with rising input costs, rapidly evolving consumer preferences and changing HFSS regulations, strategic buyers are seeking acquisition targets with strong technical capabilities to drive innovation and diversify their product portfolios, closely aligned with their strategic objectives.”
Private equity activity also slowed in Q3, with 13 deals recorded compared with 17 in Q2, accounting for 27% of total transactions, down from 33% in the previous three months. Of these 13 PE-backed transactions, only four involved minority stakes – Alice Mushrooms, Bespoke Kitchens, Arrowtown Drinks and Goodrays – signalling investors were maintaining a “more selective and strategic approach” to capital deployment, Sartori said.
The remaining deals were full or majority acquisitions, largely driven by existing portfolio companies executing on buy-and-build strategies, including acquisitions by CapVest-backed Inspired Pet Nutrition and PAI-backed Compleat Food Group’s takeover of Fresh-Pak.
“PE investors appear to be adopting a more cautious stance – focusing on disciplined capital allocation and value creation within existing platforms – while trade buyers continue to drive consolidation in response to cost pressures, shifting consumer preferences and supply chain dynamics,” Sartori added.
Alcoholic drinks made up the most active sector in food and drink M&A in Q3, as well as in the previous quarter, with eight deals. Notable transactions included Heineken’s continued investment in hard seltzer brand Served Drinks.
Petfood also continued to benefit from long-term tailwinds as the number of pet owners and a preference for premium offerings remained high, with six deals completing in the quarter.
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