UK M&A volumes held up in the first quarter of 2015, but deal values were significantly down as small-scale consolidation dominated the market.

Between January and March there were 37 transactions involving UK and Irish targets and buyers, according to Grant Thornton’s first quarter M&A report.

This level is similar in volume to the previous four quarters, which saw an average of 41 deals.

However, a drastic reduction in the number of deals with disclosed values meant recorded deal values plummeted. Official disclosed values for the period totalled just £102m, split across six transactions, compared with £3.2bn in the final quarter of 2014, which was boosted by the £2bn sale of United Biscuits.

Global M&A activity during the Heinz’s £36.5bn merger with Kraft during the quarter, but the deal was not included in UK figures.

“Given that deal values for larger transactions tend to be reported publicly, it could be inferred that first quarter activity has been dominated by the consolidation of small and medium-sized targets,” said Trefor Griffith, head of food and beverage at Grant Thornton.

Griffith expects deal volumes to remain robust this year, driven by defensive consolidation.

“Brands are under pressure and producers are responding by taking a hard look at their businesses, with Kraft-Heinz a good example of this strategic response,” he said. “The impact on the rest of the sector of this activity among the largest global players is likely to be profound.”

Rival producers will look at defensive mergers or risk becoming targets themselves, Griffith warned.

“By bolting businesses together, companies can create cost synergies and the aggressive cost-cutting techniques being used by 3G Capital are likely to be rolled out more widely across the sector. In a market where margins have already been cut to the bone, this environment will create winners and losers, driving further deal activity as the strong acquire the weak.”

Another factor supporting deal volumes in the continuing growth of the convenience and food-to-go sectors, illustrated by HIG Capital Europe’s acquisition of sandwich-maker Adelie for an undisclosed sum.

Transaction volumes in these areas experienced a significant upturn last year, and the trend has continued in Q1 with 13.5% of transactions in the deli/convenience sector.

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