Private equity (PE) firms that acquired companies at the top of the market between 2005 and 2007 wanted to sell them off without taking too much of a hit, said Ashley Clarkson, associate director for food and beverage at Grant Thornton.
Meanwhile others – which are “sitting on a lot of cash” – were looking for good investment opportunities in the sector, said Clarkson. Trade buyers were also showing interest in opportunities to grow their market share, he added.
Food and drink manufacturers with brands, rather than low margin own-label businesses, were likely to be the focus of attention, Clarkson suggested.
He expected increasing interest from potential overseas purchasers of UK companies, and predicted that the drinks sector would be a likely target.
The last financial quarter has seen “a downturn compared with the previous year” in the level of PE investment in M&A, said Clarkson.
He expected this pent up demand to result in rising activity next year as various UK economic indicators show signs of improvement.
‘A lot more optimism’
“Going into 2014 there is a lot more optimism – it's the drip feed of good news and good indicators,” said Clarkson.
“Because we have been in such a slow growth economy, if you are going to grow your business, organically it's a long journey so therefore you look to acquisitions for quicker growth.”
But Clarkson accepted that many deals in the past had not been successful. “There is a history of them not adding value,” he said. “But people have recognised that you’ve got to integrate them properly to reduce costs, otherwise there is no point in doing the deal.”
This was especially important when economies are not growing, Clarkson added.
A recent survey from Grant Thornton called Hunger for growth: food and beverage looks to the future reported on increased optimism in the sector.
It concluded that companies were looking to invest both at home and abroad, while taking advantage of growing export potential.
However, barriers to growth – such as rising raw materials prices and eroded margins – remained. Over 40% of UK respondents predicted that raw material prices would rise by between 1–5% over the next 12 months and this would present the biggest challenge for the sector.
Would require additional funding
The report also found that 60% of food and drink businesses surveyed would require additional funding over the next 12 months as they increased investment in facilities, equipment, IT and new product development.
Business confidence, M&A activity and access to finance will be among a raft of topics discussed at Food Manufacture’s Business Leaders’ Forum, which takes place on Tuesday January 21 at the offices of legal firm Stephenson Harwood in London.
This free morning event, chaired by Paul Wilkinson, chairman of Thorntons and the National Skills Academy, is by invitation only to directors of UK food and drink manufacturing businesses. If you would like to know more about the event, please email Food Manufacture's editor Rick Pendrous on firstname.lastname@example.org for further programme details.
Following Food Manufacture’s Business Leaders’ Forum held on January 15 2013, the event’s chairman Paul Wilkinson shared his views on the key themes that emerged at the event with Food Manufacture’s group editor Mike Stones in an exclusive video interview.