Acquisition Getty

The promise of a deal flurry in early 2022 soon evaporated under the geopolitical and global uncertainty as potential buyers pulled back from activity amid the volatility.

The post-Covid recovery in dealflows in 2021 saw Top 150 M&A volumes jump to 24 from just 13 in the previous year, but this has fallen to 18 announced deals in 2022, which itself is distorted by strong deal flow at the start of the year that then sharply dropped off.

“Food and drink typically does rather well as a safe haven within a recessionary environment,” says Piper Sandler European food & beverage MD Damian Thornton. “But in the near term there is so much volatility that buyers want to see how things evolve before making a move.”

Nevertheless, economic turmoil is an opportunity to drive consolidation, particularly the prospect of defensive-driven deals that do not require additional debt. OC&C managing partner Will Hayllar notes: “The need to use M&A as a lever to create value is still pretty significant – whether that is big multinationals with portfolio restructuring to do or growth positions to scale up. Defensive mergers can often benefit first because the capital is already deployed and companies are effectively pooling that.”

There is also likely to be an acceleration of distressed assets available as companies without balance sheet strength struggle to survive. With the weakened pound it may be that international players look more closely at UK assets – particularly those with significant non-UK revenues, such as Grupo Bimbo’s recent acquisition of US-focused St Pierre Groupe.

The rising cost of debt is a potential brake on deal flow, given private equity’s strong involvement in the sector’s M&A.

What needs to happen to drive a meaningful uptick in deal activity is more certainty and alignment around valuations. Alantra head of UK food & beverage Charles Lancely notes valuations were at cyclical highs in Q1, but business owners “willingness to catch up to the new reality has been slow”.

Even if recessionary conditions take hold in 2023, Hayllar suggests moving on from this period of intense uncertainty should provide a sounder backdrop for deal activity: “Uncertainty is really what kills activity – so as that starts to clear, even if the reality is more gloomy, then buyers have a basis to be able to build plans against.”

The Big Squeeze: OC&C 150 supplier rankings 2022