Food and drink M&A more subdued in 2015

By Rod Addy contact

- Last updated on GMT

Bright Foods's purchase of Weetabix has been one of the biggest 2015 deals
Bright Foods's purchase of Weetabix has been one of the biggest 2015 deals

Related tags: Mergers and acquisitions

UK food and drink mergers and acquisitions (M&A) lost their fizz in the first four months of 2015, discounting major one-off transactions, according to financial advisory firm Oghma Partners’ latest review.

Excluding frozen food firm Iglo’s £1.9bn acquisition by Nomad​ and Bright Foods’s purchase of the rest of Weetabix​, other transactions totalled just £245M, versus £950M in the same period last year, the report claimed. That picture contrasted sharply with the rest of the world, it argued.

“Global M&A since the start of the year has been active with significant deals in the energy, pharma and food (eg Heinz/Kraft Foods) sectors with overall deal value up by around 20% on 2014,”​ the paper’s authors wrote.

“Within the UK, in general, however, the first quarter saw a much more subdued performance with the volume and value of deals across all sectors down by approximately 20%.

‘Pre-election nerves’

“A deeper analysis of the data highlights a reduction in the number of deals between £50M – £100M and £10M – £20M. The reduction in these mid-scale transactions may reflect a number of factors including pre-election nerves and/or concerns over the current trading conditions with the struggling UK supermarkets.”

While they recognised that the value of UK deals had risen, they stressed this had been driven by private equity firm Nomad’s purchase of Iglo and the Weetabix deal, completed by China’s Bright Foods.

Interest in branded players offering high margin returns remained strong, but weaker own-label firms were proving less attractive, said Oghma Partners.

UK food industry deals 2015 by category

1: Grocery & confectionery: 26%

2: Beverages: 22%

3: Chilled food: 17%

4: Agribusiness: 13%

5: Other: 13%

6: Frozen food: 9%

Source: Oghma Partners

‘Returns are low’

“In addition, sellers are facing an environment where returns on cash are very low and thus the valuation needed to help replace the loss of income from the business has risen in recent years, making an acquisition a more steeply priced challenge than previously,”​ according to the report.

Commenting on the Iglo deal, it stated: “Whether the ownership will have any impact on how the business is run remains to be seen. However there are indications that Nomad is looking to find bolt-on acquisitions for Iglo. With 90% of the frozen food market to go for in Europe, the next few years could see Iglo acting as a leading consolidator in the sector.”

The acquisition by Malteries Soufflet of Coors UK malt operations was another noteworthy transaction during the period, said Oghma Partners. It represented the first entry by Malteries into the UK, but part of its plan to build a pan-European malting business.

Select 2015 deals, excluding Iglo and Weetabix

Date announced

   Bidder

   Target

   Sector

   Value (£M)

January 16

   International Procurement & Logistics

   Fenmarc Produce potatoes & seeds business

   Potato & seeds

   10.5

January 20

   Real Good Food Company

   Rainbow Dust Colours

   Cake decorating products

   7.5

February 2

   AG Barr

   Funkin

   Premium cocktail solutions

   21

February 3

   Frutarom Industries

   Foodblenders

   Ingredients

   2

March 19

   Devenish Nutrition

   Vitrition

   Animal feed supplements

   0.7

March 31

   Marstons

   Daniel Thwaites beer division

   Beer

   25.1

April 29

   Nichols

   The Noisy Drinks Company

   Sugar-based drinks

   2.7

April 29

   Tereos

   Napier Brown Sugar

   Baking ingredients, jams & sweet bakery

   34

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