You might think from all the doom and gloom in the papers that deal activity in the food and drinks sector had disappeared completely. While this may be true of the wider M&A market, there were E12.8bn of food deals completed in Europe in 2002, an increase of 50% on 2001 and only slightly down on the E13.9bn recorded in 2000.
The total for the UK was E1.6bn in 2002, compared with E1.0bn in the previous year, although still well down on the boom years of the late 1990s.
One of the main reasons for this resilience is the ongoing interest in the sector from private equity (PE) firms.
The latest Food Insights report by PricewaterhouseCoopers shows that PE houses invested more than E2.9bn into European food and drink companies in 2002.
That investment accounted for more than 20% of total deal value for the third time in the last four years. Interest has remained strong into 2003 (the most recent example being Industri Kapital's purchase of Blini, a leading French producer of taramasalata, in March) and we expect this to be maintained.
Looking ahead, consolidation in the retail sector will ultimately force further consolidation in the food manufacturing industry.
There has been plenty of cross-border activity, with Cadbury Schweppes' purchase of Adams Confectionery from Pfizer and Nestlé's acquisition of Powwow among the largest.
Targets in France, Spain and eastern Europe have attracted the most interest over the past year. With a few high profile exceptions, demand for German companies has remained weak. The proportion of deals with a cross-border angle has remained constant at about one-third, but this rises significantly when the target is larger: 63% of all food deals over E100m in 2002 had a cross-border angle to them.
It has not all been plain sailing, however. The uncertainty surrounding the grocery retail sector has been a drag on deal volumes.
The timing of several deals involving food manufacturers has been put back until the financial effect of any potential changes in ownership among their retail customers can be clarified.
But, those who are looking to sell their companies just need to do their homework. They need to be confident that their advisor has strong contacts with potential buyers all over Europe and sometimes further afield as well.
n Neil Sutton is head of consumer products, PricewaterhouseCoopers Corporate Finance. If you would like to receive a copy of Food Insights, please contact Kumud Patel on 0207 213 1037 or e-mail email@example.com