Our latest edition of Bite Size, a quarterly overview of activity in the UK food and beverage (F&B), sector provides analysis of M&A activity in the second quarter of 2016 and touches on some of the burdens the sector faces following the UK’s unprecedented decision to leave the European Union.
Download the report or read on for the highlights.
The total number of deals completed in Q2 decreased to 44, a 20% drop compared to the previous quarter. The uneven concentration of deals throughout the period demonstrates the uncertainty created ahead of the referendum, with 20 deals concluded in April, 14 in May and only 10 in June.
Although the year-to-date total of 99 deals represents a circa 9% decrease compared to the first half of 2015, the sector has performed favourably compared to the slowdown seen in overall UK market activity.
Burdens after Brexit
The regulatory burden created by EU membership is a familiar complaint from businesses. Rules governing the shape of bananas and the size and colour of strawberries, for example, show the extent to which EU bureaucracy impacts the food industry. However, the regulatory burden is likely to remain high in the post-exit world as a substantial proportion of the regulations are driven by customer service and food safety requirements. The supermarkets will continue to place stringent conditions on their suppliers whether the UK is in or out of the EU.
Asian buyers on hold?
Whilst the UK F&B market remains attractive to overseas buyers, there has been some softening in cross-border M&A activity in the sector. The impact of uncertainty regarding Brexit on Asian and other overseas buyers may be part of the reason for the decline. Historically, the UK has been viewed as a stable and open market. The current state of volatility – with sterling weakening, political turmoil and a possible recession looming - may put off future investment until there is greater clarity on the terms of future trade with the EU.
Private equity pursues snacking trend
There was a slight pick-up in private equity investment in the F&B sector in Q2 2016. A number of the deals were driven by the trend towards snacks and convenience food.
Consolidation continues in alcoholic beverages
The brewery and alcohol sector has consolidated further in 2016 with 15 transactions, ten of which were in the second quarter, ranging from wholesale through to beer (in particular craft beer) and spirits. The craft beer sector remains a hotbed of activity.