What can we expect from the F&B sector this year?
This time last year, I said 2023 would mark a comeback for food and beverage (F&B) M&A. I'm heartened to say that the data has proven me correct.
Though not back to pre-COVID levels, F&B deal activity has rebounded from 2022, when dealmakers pressed pause as the cost of living crisis emerged.
Mid-market trade deals were steady in 2023, while private equity (PE) accounted for 37% of activity. Minority stakes and VC funding accounted for 57% of PE deals, suggesting a cautious confidence in the consumer-facing sector.
I expect deal volumes to continue growing throughout 2024 as consumer headwinds begin to ease.
Announced M&A activity in food and beverage - quarterly
Announced M&A activity in food and beverage - annually
M&A got busier during the first three quarters of the year before slowing in Q4. Total deal volumes for 2023 (164) were up 41% on 2022 (116) when the current cost of living crisis began. While this is encouraging news for the sector, transaction volumes are still below pre-COVID levels.
In 2023 PE deal volumes were up 58% compared to 2022. Transactions tended to sit at two extremes: big-ticket deals by large houses at one end and minority stakes or opportunistic acquisitions by smaller firms at the other.
Apax's USD 700 million acquisition of Bazooka Candy Brands exemplifies the former, while BREAL Group's acquisition of several distressed brewing companies throughout the year demonstrates the latter.
Mid-market PE remained quiet, though we're seeing returning interest in recent conversations with clients.
Over half of all PE deals in Q4 were minority stakes, including Morgan Stanley Investment Management's strategic partnership with Huel via its 1GT climate fund.
As a light aside, Q4 included two private investments by comedians. Ricky Gervais became a co-owner of Ellers Farm Distillery, a distillery of gin, vodka, and liqueurs, and TV presenter Joel Dommett joined an investment round into The Turmeric Co alongside the founders of Rubicon Drinks. The respective deals result in a double-win for the sellers, bringing both investment and high-profile brand ambassadors.
Announced PE activity in food and beverage - annually
The overwhelming majority of 2023 deal activity was domestic (80% versus 75% in 2022). As conflicts continue to disrupt supply chains and economies worldwide, it's no surprise that dealmakers are focusing inward.
This was reflected in Q4 2023, which saw the domestic/cross-border split change to 73:27 from 58:42 in the previous quarter.
Functional foods was the most active subsector in Q4, followed by spirits, beers and ales, and plant-based categories.
Instant nutrition was the flavour of the month in October when Premier Foods acquired high-protein cereal maker FUEL10K, and Morgan Stanley took a minority investment in ‘complete food’ shake company, Huel.
Rescue and recovery drove Q4 beer and ale transactions. Breal Capital acquired Purity Brewing from administration. Separately, St Peter's Brewery bought Curious Brewery and Wild Beer Co, which were backed by Risk Capital Partners. Curious Brewery rescued Wild Beer Co from administration in January 2023.
Previous quarters have shown early-stage investment in solutions that can help solve climate-related food challenges. In Q4, Abu Dhabi's Hub71 incubator invested in Sustainable Planet, a UK AgriTech company that grows water lentils on non-arable land.
Recent supermarket trading updates paint a positive picture of consumer sentiment towards F&B over the Christmas trading period. Tesco, for example, raised its annual profit expectations after Christmas sales grew by 6.4% year-on-year. The chain said that sales of its Finest range had increased by nearly 17%, but it had also attracted shoppers with thousands of price cuts. Meanwhile, Sainsbury's attributed its festive sales growth to a combination of increased volume and inflation.
Zooming out, consumer headwinds are beginning to ease. The Bank of England has held interest rates at 5.25% since August, and grocery inflation is falling, although shipping delays in the Red Sea area may impact this.
Compared to 2023, consumers are arguably starting to show small signs of confidence. If this continues, M&A activity will continue to return through 2024.
For more insight and guidance, contact Nicola Sartori.
