The upturn in food and drink mergers and acquisitions (M&A) activity predicted by many corporate finance experts in 2010 has “not really materialised”, according to legal firm Rollits.
Many observers had anticipated there would be “renewed vigour for doing deals” in 2010, with buyers and sellers “having established that organic sales and profit growth is very hard to come by in these recessionary times”, said Rollits’ food group director Julian Wild. “With the worst of the banking crisis appearing to be behind us, there were some signs that lenders might start doing what they do best – lend!”
No sign of an upturn
However, the anticipated upturn in activity “did not really materialise, or at least not in the UK”, he said.
Several businesses in the sector have gone into administration (although relatively few have disappeared altogether) and there has been some “retrenchment to core territory” by Greencore and Uniq, he added. “But there was very little positive action from the major UK food and drink companies.”
Rollits brokered deals for TSC Foods, 3G Food Service and Pasta King in the second half of 2009, said Wild. “But deals were pretty thin on the ground generally.”
That said, the prices paid by Kraft for Cadbury, by Noble Foods for Gü and by Diamond Foods for Kettle Foods, confirmed that good quality branded businesses with a strong market position would still command high prices despite the tough economic climate, he added.
Raisio’s acquisition of Glisten “came as something of a surprise” to the market, although Glisten’s debts and depressed share price had restricted its ability to grow through acquisition, he noted. “It will be interesting to see whether there is renewed interest in other AIM-listed public companies such as Finsbury and Zetar.”
Key drivers behind business deals
Bob Henry, partner at Matrix Private Equity Partners, said continued financial distress; a renewed drive on innovative product development amongst larger companies that could prompt them to buy smaller, more agile companies; and the desire of private owners (that had been sitting on their businesses for a couple of years) to exit were the key drivers behind deals this year. However, many firms were “sitting on their hands until after the election”, he admitted. “There is a lot of noise in the market right now but less action. But we are talking to people trying to unlock deals. I think there will be a strong second half bias this year on deal activity.”
Grant Thornton corporate finance partner Phil Jackson said buyers and sellers alike were waiting for the election results. “After the election everybody is expecting the new government to raise money and that it will look for the easy targets. There is some activity I am aware of under the wire but we’re not talking about large amounts of money changing hands. I think a lot of people will come out of the woodwork after the election.”
Adelie; Bakkavör; RF Brookes and Avana Bakeries (owned by Premier Foods); Park Cakes and Pork Farms (owned by Vision Capital); could all change hands in the next couple of years, according to analysts at Investec Securities in a recent note exploring potential acquisition targets for Greencore.
All of the targets identified were held by “businesses whose financial structure looks under some pressure or by private equity players who will at some point need to seek an exit”, they claimed.