Late last month, Sky News reported that a £70 million deal for ABF to buy Hovis from private equity firm Endless LLP was close.
Both firms have confirmed talks are ongoing, without providing further details. Despite this, Watson is confident that a deal is now a “question of when, not if”.
This, he has argued, is because of “unsustainable losses” at both businesses, with Hovis recently reporting an increase in pre-tax losses from £4.8 million to £8.7 million in the period between 2023 and 2024. Meanwhile, ABF put its bread division Allied Bakeries under strategic review in April 2025 after profits and revenues declined in the 24 weeks to 1 March.
Offering his assessment, Watson said: “The Hovis-Kingsmill merger is a clear sign of the pressures facing the UK bakery sector. With inflation driving up costs and bread consumption in steady decline, consolidation was always a question of when, not if.
“The deal gives ABF a new market leader with 41% share, overtaking Warburtons’ 34%. But behind the headline is a tough reality: both businesses have been making unsustainable losses. The real prize here is efficiency – rationalising overlapping bakery networks and cutting costs in procurement, logistics, and manufacturing.”
To further justify his argument, Watson pointed to other mergers taking place across the food and drink industry.
“This is part of a wider pattern across food and drink, where M&A is being used to counter cost pressures and capture growth in more resilient categories,” he said.
“The Hovis-Kingsmill tie-up now joins a growing list of strategic pairings, including Mars-Kellanova and Greencore-Bakkavor. The race is on to adapt – and survive.”
As for the prospects of a new merged business, Watson said that execution will be the determinant of success.
“Disrupting existing customer relationships now, while both brands are losing share, would risk compounding the problem,” he continued.
“Longer term, the challenge is to stop managing decline and start building momentum. That means addressing structural issues in the bread market and responding faster to shifting consumer trends – whether that’s health, speciality products, or premium lines.”
Speaking when the Sky News report first emerged, CEO of the food-focused Prof Consulting Group, Mark Field, told Food Manufacture that a potential merger would represent a “strong strategic move”.
“In addition to the clear benefits in market share growth, with the two businesses so closely aligned I would expect there to be significant efficiencies from procurement and packaging through to operations, range rationalisation and sales that would be unlocked initially, critical to drive long term competitiveness and further market share gains,” Field added.
