Grant Thornton’s ‘Food and beverage insights’ report found that total disclosed deal value for the sector increased dramatically in 2017, to £21.4bn.
This was more than two times the value recorded in 2016 (£8.4bn) and substantially higher than the value recorded in 2015 (£10.8bn, not including the £71bn SABMiller deal).
Excluding deals over £1bn, the total disclosed deal value for 2017 came to £6.2bn a substantial increase on 2016’s £4.3bn, said Grant Thornton.
The year ended with a particularly active quarter, with the fourth quarter (Q4) 2017 recording a total disclosed deal value of £7.4bn. Of this, £6bn was attributable to the sale of Unilever’s spreads businesses to US private equity house Kohlberg Kravis Roberts.
Removing mega-deals from the analysis resulted in Q4 2017 having a disclosed deal value of £1.4bn, compared with Q3’s total of £1.2bn.
Deal activity in the sector last year strengthened not just in value but also volume, said Grant Thornton. Across 2017 there were a total of 206 deals, compared with 202 in 2016.
Interest from overseas investors in UK food and beverage assets continued to grow in 2017, accounting for 33.7% of the 163 deals involving UK and Irish targets. This represented a slight increase on 32% in 2016 and 28% in 2015.
Private equity (PE) activity was also particularly strong last year, it added. More than a fifth ( 22%) of deals involved PE investment, the highest level seen in the sector since Grant Thornton began tracking the data.
“We recorded exceptional outcomes for M&A [mergers and acquisitions] activity in the food and beverage sector,” said Trefor Griffith, head of food and beverage at Grant Thornton.
‘Injection of confidence’
“Last year, saw total disclosed deal value rocket to more than two times that of 2016, delivering another injection of confidence into the sector. Interest from overseas investors also increased and PE activity reached a record high.
“The ongoing uncertainty around Brexit, of course, continues to present challenges for the sector. Of the estimated 400,000 people working in the UK’s food and beverage sector, a third are non-UK EU nationals or born overseas. These numbers have been steadily dropping since the EU referendum vote, in part due to the lack of clarity on the future of European workers in the UK.”
Food manufacturers were already feeling the effect of this and those struggling to source staff could see M&A opportunities slip past them as they struggled to achieve sustainable growth, he added.
“However, as 2017 has demonstrated, sector appetite remains high,” said Griffith. “The growing interest in health and wellbeing, the ever increasing need for convenience, and the trend for premiumisation continue to influence consumer choices and boost M&A.
“Consumer taste buds and preferences are constantly shifting, so the challenge for the sector lies in identifying new trends and being swift to respond to them.”