The Kraft-Cadbury deal has distorted M&A levels this year, but even without it, the value of deals has risen sharply. There’s more to come, says Rob Brown

Kraft's acquisition of Cadbury in January may have been the first and biggest deal of the year so far but it certainly hasn't been the only one. The first four months saw Gü go to Noble Foods, Innocent lose yet more innocence to Coke and Kettle cash in its chips with Diamond Foods.

Chunky deals in themselves, they've helped boost the overall value of food and drink transactions (excluding the £13.6bn Kraft-Cadbury deal) to £745m over the first four months of the year, reveals exclusive data from M&A specialist Oghma Partners. That's more than double the £300m-worth struck in the same period last year. So has confidence returned and if so, who's next on the M&A shopping list?

Kickstarted by Kraft's goliath move on Cadbury, "a once-in-25-years occurrence", the level of activity is likely to pick up, believes Oghma Partners MD Mark Lynch.

He points out that although the number of deals was down slightly, slipping from 22 to 20, M&A led by foreign corporate investors capitalising on the weak pound accounted for 30% of transactions, up from 24% last year, and acquisitions through insolvencies were down from 21% to 15%. "People are feeling a little bit more positive about things," he says. "Balance sheets are being resolved. Companies are in less trouble."

However, potential buyers, particularly private equity players, are still wary, he says. "'Fragile recovery' may be too strong. It's still a tentative recovery people are still cautious," he says.

Buyers are therefore more likely to target smaller, up-and-coming companies approaching that "what next?" point in their evolution, when they realise they need more resources or greater distribution to take the business to the next level. Larger trade buyers in particular will be more than happy to give them a leg-up, predicts Lynch.

"It's when it reaches that critical mass point £10m is a bit of a magic figure," he says. "Look at the vodka companies, the likes of Grey Goose built by small companies and then taken on and given global distribution. Going back further you can look at Ben & Jerry's or Häagen-Dazs. I call them 'brand incubators'."

Understandably, would-be buyers are tight-lipped about the businesses they're eyeing up, but the new generation of entrepreneurial brands must be high on their shopping lists. "There is clearly a case for some of the businesses that have grown up in the past few years, the likes of Eat Natural and so on," says one commentator. "There are certainly businesses out there that could be available in the next few years."

Others suggest companies as diverse as Burts Chips, organic dairy producer Rachel's, vegbox supplier Riverford Organic Vegetables and healthy kids' ready meals company Little Dish could be showing up on the M&A radar soon.

Britain's own-label producers offer further opportunity, according to Will Hayllar, a partner at strategic consultancy OC&C. The sophistication of our own-label sector compared with those abroad and the current weakness of the pound mean "it's an area that's clearly ripe for M&A", he says.

The example of Glisten, which was sold to Raisio, the Finnish owner of Benecol, for £47.9m in February, suggests that there won't just be interest from domestic buyers. "The crash of the pound has presented European investors with the opportunity of changing their view of deals they were thinking of doing anyway,"says Glisten founder and CEO Paul Simmonds. "Some of this is opportunistic. UK companies are just a bit cheaper at the moment, which is a fantastic opportunity."

For corporate buyers at least. In the first four months of the year, private equity players accounted for only about a fifth of deals, according to the Oghma report. And the signs are that as long as access to finance remains difficult, they will continue to lag behind their corporate cousins.

"That's clearly the largest single factor," says Hayllar. "Where private equity players are looking to make acquisitions, they have to make a much clearer case of how they will improve the business. It can't work purely on leverage."

If they do get back in the game, however, M&A levels could rise further still. As Hayllar says: "Private equity is still there. And it still has a lot of money that needs to find a home."