In the first of a regular series Neil Sutton provides an update on M&A activity Looking back over the past few years, the venture capital community was often reluctant to invest heavily in the food and beverages sector, fearing that it would be outbid by trade buyers and mindful of the significant capital expenditures often needed. As more complex transactions have come to the fore, though, venture capital interest in the sector has risen, either as independent purchasers or in consortia with trade players. Although we have not seen any venture capital deals on the scale of Doughty Hanson's purchase of RHM so far this year, the public-to-private buyout (the buyout of a publicly quoted company) of Perkins Foods by ABN Amro Capital over Christmas indicated that the appetite is still there. Plenty of others are running the slide rule over prospective public-to-private candidates, although the current vogue for "defensive" stocks has meant that food producers' share prices have not suffered as much as other sectors and thus may not look as undervalued to buyers. As the table (below) of major M&A transaction shows, the blockbuster deal of the last quarter was Nestlé's £7bn tie-up with Ralston Purina. Completion is not expected much before the end of the year, however, because Federal Trade Commission and shareholder approval have still to be secured. On the drinks side, the joint purchase of Seagram's wines and spirits businesses by Diageo and Pernod-Ricard, which was announced in December 2000, was still awaiting regulatory approval in Canada and the US at the time of writing. After Nestlé/Ralston, the table shows a huge drop in terms of value to Campbell's purchase of Unilever's European dry soup and sauces business in second place. The sale of this operation was one of the conditions attached to Unilever's takeover of Bestfoods last year. The acquisition strengthens Campbell's position in the European market, where it already controls two wet soup brands, Liebig in France and Erasco in Germany. Italy proved a "deals hotspot" in the first three months of 2001. In addition to the Perfetti and Barilla acquisitions, we have seen Arena take control of Nova Surgelati frozen foods and Bonduelle of France add Ortobell (ready-to-eat vegetables) to its Cielo e Campo operation. Kimberly-Clark, which distributes its Scottex and Kleenex tissue brands in Italy, has added the country's second largest nappy brand, Lines, via its purchase of Linostar, which it will use as a platform to introduce the Huggies brand to Italy. Reflecting the increasing importance of Europe, the largest purely UK deal with a disclosed value was a small management buyout ­ Kingsland Wines & Spirits (£14m). Inter Link Foods has expanded in the cakes sector through purchasing Nicholas & Harris (for up to £4.9m) and Cakes for the Connoisseur (maximum of £3.1m). Meanwhile, Princes has taken control of the Beta Foods fishpaste, canned chicken and pâté business. In the frozen and prepared food sectors, Sara Lee intends to sell Brossard (frozen cakes and pastries) to Saveurs de France. Hibernia Foods of Ireland has added La Bohème's UK chilled desserts business and Greencore's acquisition of Hazlewood Foods was also finalised in the first quarter of 2001. Looking forward, foot and mouth disease will have an impact on the level of deals in the second quarter of 2001 and beyond in some sectors. Nevertheless, some of last year's larger deals are likely to result in further smaller disposals as acquirers digest acquisitions and spin off bits they don't want to keep or must sell for regulatory reasons. Neil Sutton is head of consumer products, PricewaterhouseCoopers Corporate Finance {{FEATURES }}