“I expect we will see an upswing in mid-market mergers and acquisitions – particularly in the UK, as the economy continues to grow and buyers have greater confidence,” Mercer told the Food Manufacture Group’s Business Leaders’ Forum last week (January 22).
“We tend to hear from the usual suspect corporate finance houses, such as McQueen, that there are quite a few auction processes that have started or are about to start.”
Mercer noted rumours of Premier Foods continuing its long-term trend divestment strategy. Speaking before the manufacturer announced its joint venture with the US-based Gores Group to run its Hovis bread and flour business, Mercer noted its intention to move beyond the non-core brands to focus on developing key brands.
‘A bid for United Biscuits’
Hony Capital was also said to be interested in making a bid for United Biscuits. “Weetabix could also be offered for sale. Although it was only acquired by Bright Foods less than two years ago, the firm is rumoured to be thinking about an IPO [initial public offering] on the London market,” said Mercer.
Key brands would remain the focus of acquisition targets – particularly where overseas buyers are concerned. “And we will see a continued interest in M&A activity within growth categories – such as baby foods, health foods, including gluten-free and snacks.”
Western buyers were likely to return to the M&A market this year, in addition to the continued presence of emerging economies, such as China.
“While we will continue to see interest from emerging markets buyers – including the Chinese – it will be interesting to see if they can keep pace with western buyers,” said Mercer. “It takes a long time to structure and complete a deal with the Chinese – whether they will be able to compete with western buyers in auction processes remains to be seen.”
‘Brand will continue to be king’
“So 2014 will be a better year for M&A,” concluded Mercer. “The focus will still be very much on opportunities with strong fundamentals, within that the brand will continue to be king.”
Last year, global consumer goods firm mergers and acquisitions fell by both the number and value of deals, compared with 2012 – including a massive 40% drop in the fourth quarter, according to the Mergermarket Group.
Japanese buyers were active last year “looking for international growth to escape domestic constraints”, said Mercer. “The Japanese firm Suntory announced it was buying Jim Bean for £13.6bn, which pretty quickly followed on from the Ribena and Lucozade deal it did earlier in the year." Also in the US, Heinz was acquired by Berkshire Hathaway for £28bn.
“These deals also demonstrated recovering asset values,” he continued. “The Heinz deal was at a 16x EBITDA [earnings before interest, tax, depriciation and amortisation] multiple and the Jim Bean deal was at 20x multiple, which are pretty staggering.”
Geoff Eaton, former chief operating officer for Premier Foods, said the private equity model of funding mergers and acquisitions focused managers’ attention on adding value to the business. “We all do three-year strategic plans but how many of us use that to do the deal of the century? We would do well if we did.”
The motives behind an acquisition could also influence on its success, he added. “2 Sisters’ acquisition motivation seems to be big, whereas my sale of Uniq to Greencore was very strategic.”
While there were lots of examples of good mergers and acquisitions, “some – fuelled by debt – should never have happened”, said Eaton.
The Business Leaders’ Forum, – chaired by Thorntons’ chairman Paul Wilkinson– was staged in association with Stephenson Harwood and sponsored by Agrantec, Intertek, Tata Consultancy, plus insurance firm Aon, Columbus IT and NSF International.