F&B deals fall as business uncertainty bites

By Michelle Perrett

- Last updated on GMT

Food and drink M&A dropped in the past year as uncertainty continued to rise
Food and drink M&A dropped in the past year as uncertainty continued to rise

Related tags Supply chain

The number of UK food and drink deals have dropped by 20% with value falling by 90% in the year to August, driven by business uncertainty, debt availability and the changing appetite for risk.

The new report from finance house Oghma Partners has estimated that there were 50 food and beverage deal in the period to August versus 62 in the prior year. 

The report also showed that the UK Food and Beverage M&A market activity in four months of 2022 (May to August) saw a 29% drop off in deal volume when compared with the same period in the prior year. 

Oghma’s analysis recorded 22 deals for the period with a corresponding overall estimated deal value of c. £270m compared to £3.9bn​ in the prior year period, a more than 90% decline, continuing the first four months of the year.

Deals

The Oghma report found that around 60% of deals had an estimated value of £20m or less which is a continuation of what we saw in the first four months of the year (Jan to April). 

Overseas buyers accounted for 36.4% of deal volume  with notable deals including Solina’s acquisition of Zafron Foods and Lotus Bakeries acquisition of Peter’s Yard. 

Oghma said that activity from financial buyers dropped off significantly only accounting for 9.1% of total deal volume for the period. It predicted that this could be a sign of things to come as witnessing interest rates are rising around the world which will impact on PE companies' ability to raise debt to fund acquisitions. 

Despite this Endless LLP completed their acquisition of KTC Edibles​, the Wednesbury-based edible oils supplier which it said “was probably” the largest deal in the UK F&B space during the period.

Sizeable transactions

Grocery and confectionery was the most active category for the period with the most notable deal being Premier Foods acquisition of The Spice Tailor.

“Particularly absent in the first eight months of the current year has been any sizeable transactions. In 2021 for example there were six deals with values ranging from £200m to £2bn with the average deal size of this group at £1.1bn," ​said Mark Lynch, Partner at Oghma Partners.   

“The decline in deal activity we believe is related to a number of factors. Firstly, business uncertainty - the trading environment is difficult, many food & beverage companies have had to put through sharp price increases with more to follow in the coming months. Profitability is under pressure and the outlook uncertain putting off buyers and sellers alike. 

"Secondly, debt availability and cost – it appears that liquidity is getting tighter with banks less willing to lend and the cost of debt is rising as governments seek to both fight inflation and fund expansionary fiscal budgets. Thirdly, changing appetite for risk – a declining appetite for risk is seen in public markets via rising bond yields, a falling bond market and lower debt availability. Buyers changing appetite for risk is noted by increasing hurdle rates and lower valuations as a result.”

 

 

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