Food and drink M&A activity on the decline in 2022

By Gwen Ridler

- Last updated on GMT

M&A activity took a dip in 2022, but things are looking up this year for food and drink firms
M&A activity took a dip in 2022, but things are looking up this year for food and drink firms

Related tags M&A

Mergers and acquisitions (M&A) activity in the food and drink sector fell sharply in both value and volume terms in 2022, according to corporate finance house Oghma Partners.

The value of deals fell about 70% last year to £1.7bn compared to £6.6bn in 2021, according to Oghma’s latest UK Food and Beverage Sector M&A report.

Of the 73 deals recorded last year, 84.9% had an estimated value of £20m or less, up from the 64% and 69.5% reported in 2021 and 2020 respectively. The total volume of deals was down 19.8%.

Grocery and confectionery saw the largest amount of deal activity in 2022 (31.5%), followed by the beverage sector (20.5%) and distribution (15.1%).

Overseas activity

Overseas buyers accounted for 27.4% of deal volume in 2022, slightly below the five-year average of 33%. Deals involving a financial or private equity buyer made up 13.7% of all activity, down from the five-year average of 18%.

Mark Lynch, partner at Oghma Partners, said the key issues that had impacted M&A activity in 2022 were likely to continue in 2023, with the main issues being: inflationary and cost pressures as increases in production costs continue; the cost of living crisis; and the increased cost and reduced availability of debt.

Despite these issues, Lynch expected the value and volume of M&A deals to start to build in steam after the first quarter of 2023, as we pass the anniversary of the tougher trading environment experienced in 2022.

‘Houses in order’

“As more companies get their houses in order and sort their own problems out, M&A will not be far from the mind, with many looking at consolidation opportunities which drive cost cutting and/or market share growth,”​ he added. “Furthermore, we are already seeing some examples of portfolio cleansing.

For example, the suggested sale of Princes and IFF’s recent disposal of their savoury solutions business to PAI for c. $900m​ [£730.9m] and Orkla announcing a portfolio restructuring in October 2022 to part sell their Ingredients business. The return of the bigger transactions will inevitably boost the value of deals done in 2023 vs 2022.

“In our view, the decline in deal multiples – and the decline in the value of the quoted companies combined with the factors mentioned above – could see an increase tick-up in the volume of deals as the year progresses.”

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