About 80% of private equity firms reported plans to conduct mergers and acquisitions (M&A) activity in the sector this year.
A further 80% of corporate respondents believed that growth in the food and drink sector would be driven by acquisitions.
Trefor Griffith, head of food and beverage at Grant Thornton, said: “Our research shows that the time is ripe for M&A activity. Most businesses have reacted to the downturn by tightening their operations and processes.
“Strategies such as re-engineering products, removing waste and cutting out non-value-adding activities are all having an impact. These leaner, battle-hardened businesses have worked out how to survive and even grow, so M&A at home and abroad is the next logical step.”
Last year, the number of M&A deals in the sector rose by 22% on the previous year reaching almost pre-recession levels. The M&A activity last year, backed by the survey results, suggest the trend towards consolidation shows no signs of slowing, said Grant Thornton.
The main driver of consolidation was identified as cost savings by 87% of corporates and 59% of private equity firms. In turn, the need for cost savings were driven by wide-scale market changes in consumers’ tastes, demand and buying habits.
New product development (NPD) was identified as the main driver of growth over the next year. Its contribution was highlighted by 87% of corporate respondents and 73% of private equity firms.
Griffith said:“While NPD is vital for survival it also represents significant capital outlay in tough economic times. Consequently some businesses have acquired brands to bolt on to their existing portfolio with a view to adding value to these brands rather than innovating from scratch.
“This is evidenced by the acquisition of Fray Bentos by Baxters and the recent activity by Symington’s which has been acquiring brands such as Chicken Tonight and Ragu.”
Private equity firms identified the most attractive niches for investment as being healthy eating, branded and premium.
For corporate investors the most attractive areas were: branded, own-label and premium.
“With less money to spend and more expensive food prices, UK and Irish consumers are changing the way they shop and the type of foods they buy,” said Griffith.
“Consumers are increasingly buying products of higher quality in the supermarket or in niche high end retailers, either in the form of ingredients for a recipe or quality ready meals – which means businesses that meet this need are particularly attractive to investors.”
The report 'Where is the Smart Money going in Food and Beverage?' was published today (April 30).
M&A – at a glance
- 80% of private equity firms report plans for M&A.
- 80% of corporate respondents expect growth to be driven by acquisitions.
- 22% increase in M&A last year.
- 73% of private equity firms predict NPD will drive growth.