2014 food deals – momentum builds

By Rod Addy contact

- Last updated on GMT

Related tags: Mergers and acquisitions

Investment in premium chocolate maker Lily O'Brien's is one of the latest deals to be announced
Investment in premium chocolate maker Lily O'Brien's is one of the latest deals to be announced
A flurry of UK food industry mergers and acquisitions (M&A) could take place in 2014 as sales already underway conclude and large firms seek to boost their equity.

That’s according to Trefor Griffith, partner and head of food and beverage at Grant Thornton, who was commenting on its latest Bite Size report, which gives a snapshot of the current M&A climate.

Griffith told FoodManufacture.co.uk: “I think if you speak to people in the market, they are seeing more activity, more potential M&As. It would be a real surprise if that doesn’t translate to a pick-up in deal volumes.

“There have already been largish transactions in 2014 and there are quite a few more in the pipeline.”

He pointed to Diageo’s continued sale of most of its Whyte & Mackay distilleries​ business and reports that Unilever was seeking to divest its SlimFast brand. “Unilever is less focused on food that it was in the past and this will lead to exits in its portfolio.”

Competition concerns

Major transactions could also force the sale of lesser assets to satisfy competition concerns, as with Diageo’s Whyte & Mackay sale as a condition of its takeover of India’s United Spirits, said Griffith.

Two major deals were announced only yesterday (January 27), he said: Premier Foods’ sale of a stake in its Hovis bread division to US-based Gores Group​ and Carlyle Cardinal Ireland's investment in Kildare-based premium chocolate maker Lily O'Brien's.

“There are a whole load of other businesses that need a fresh injection of equity. There are a number that need outside investment to help them move to the next stage.”

Further interest in acquisitions was likely to come from within and outside the industry, he said. “I know there are a number of overseas PE [private equity] houses that are very interested in investing in the food sector and there are significant consolidation opportunities in a number of subsectors.

“There is pressure to be more efficient and one way to do this is through consolidation.”

However, because of the current fragile nature of the global economy, he cautioned that deals were taking much longer to complete than they had a few years ago.

Exhaustive due diligence

That was because all parties involved were insisting on exhaustive due diligence to ensure fair prices were reached and potential agreements were strategically sound, he claimed. “That means you need to be really prepared and to understand what you are trying to achieve.”

According to the Grant Thornton Bite Size report, a comparison with 2012 figures revealed the value of PE food and drink M&A deals more than quadrupled in 2013. That was despite the number of deals involving PEs falling by 10% last year.

However, the last financial quarter of 2013, when compared with the previous quarter, had seen a marked increase in activity. The number of PE-backed M&A increased by 60% in the sector over the same period, the report found.

The beverage sector in particular would be one to watch this year, with the wine market fragmented and ripe for further consolidation, according to the research.

Grant Thornton’s report follows comments made by law firm Stephenson Harwood at Food Manufacture’s Business Leaders Forum earlier this month that food industry M&A was set to grow this year​.

Related topics: Bakery, Drinks, Confectionery

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