Supermarket price war to sting M&A activity

By Nicholas Robinson contact

- Last updated on GMT

Price war pressure was limiting investor activity
Price war pressure was limiting investor activity

Related tags: Asda, Marketing, Industry

Mergers and acquisitions (M&A) in the food and drink manufacturing sector will be stung by the worsening supermarket price wars, a leading analyst has warned.

Lots of businesses supplying the major retailers would be under pressure to keep costs low because of the supermarket price wars, but this would stifle much-needed investment, claimed Julian Wild, partner at the law firm Rollits.

Limiting investment in a business made it less attractive to potential buyers, which would inevitably reduce any M&A activity in the sector, Wild told FoodManufacture.co.uk.

‘Under pressure’

“Lots of manufacturers supplying the major retailers will be under pressure, but if they are thinking about exiting the business, they wouldn’t be able to do that if they couldn’t invest to modernise first,” ​he said.

Lack of interest from investors in acquiring businesses “absolutely” ​had something to do with the supermarket price war, Wild said.

If the major retailers, such as Tesco, Morrisons, Sainsbury and Asda, kept losing market share, they would become desperate to reduce their prices further, which would hurt manufacturers, he added.

“Food manufacturers are not performing very well and it’s a tough market for the food sector at the moment, which means it’s not currently a great industry to buy in to​.”

There were also fewer trade buyers looking to acquire existing businesses at the moment, he added.

“Most of the deals that needed to be done have been done in the past few years, which means the buyers are now more selective in what they’re looking for.”

Fewer investors

There were fewer investors new to the food industry looking around for opportunities too, while those that could invest had to be careful about what they bought, claimed Wild.

“It’s quite interesting that some of the deals that have been done in the past couple of years have been done by investors new to the food industry.

“There’s a dearth of specialist food and drink firms out there for the taking, but the interest from the buyers doesn’t match the supply,” ​he added.

Meanwhile, food and drink M&A activity reached a six-year high​ earlier this year, according to a report from the law firm Irwin Mitchell.

Manufacturers in the UK were the target of 200 deals during the second quarter of 2014, compared with 183 in the first quarter, said the report.

Related topics: Ambient foods, Drinks

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