Deal activity in the first two quarters of 2019 remains consistent, demonstrating an encouraging trend for the food and beverage sector.
In total, 531 deals were announced and/or completed in Q2 2019. The previous quarter’s tally also ultimately reached 53, as some deals took longer to come into the public domain, bringing the total deal count for the first half of the year to 106. This is not dissimilar to the first six months of previous years (2018: 100, 2017: 114).
Disclosed deal value for the quarter was £1,087 million2, consisting of 14 deals. This is a 50% fall on the disclosed deal value of the previous quarter (£2,177 million). As seen previously, this lower level is mostly attributable to the lack of mega-deals (deals with a disclosed deal value of over £1billion). In 2017, for example, recorded five mega-deals during the year. Since that time, there has only been one megadeal - the sale of GSK’s Horlicks and other consumer nutrition products business for £3.2 billion in 2018.
The three largest deals in the quarter with disclosed values were: Compass Group’s acquisition of Nordic catering business Fazer Food Services for £424 million, the sale of Scotch whisky company Loch Lomond Group to Hillhouse Capital for an estimated deal consideration of £400 million and Froneri’s acquisition of New Zealand’s Tip Top Ice Cream for £193 million.
While it does seem that the uncertain economic and political environment is quashing activity at the large end of the scale, more sizeable transactions are still happening, albeit their confirmed or estimated deal values are being kept firmly out of the public domain. Other sizeable deals in the quarter include Equistone Partners’ acquisition of catering and hospitality company CH&CO, which generated 2018 revenues of £286 million, and Unilever’s acquisition of OLLY Nutrition, a US vitamins and supplements brand with revenues reported to be in excess of USD100 million.
Private equity (PE) activity got off to a slow start in 2019, with just eight transactions in the first three months of the year. In Q2, PE activity has near enough doubled with 15 deals involving PE, equating to 28% of deals.
In this quarter, domestic M&A activity has rebounded, with 28 deals (53% of the total). The domestic to cross border ratio has become more level at 53:47, compared to 43:57 in Q1. Overseas investment in UK/Irish assets has eased off this quarter, with 12 deals representing 22.6%, compared with 30.2% in Q1. Only 30% of acquirers of UK/Irish assets were of overseas origin, a moderation of the previous quarter’s level at 41%. On the other hand, outbound M&A has remained high with 13 deals in Q2 and 14 in Q1. This equates to 24.5% of the deal total in the second quarter of the year.
Spotlight on private equity
Inbound and outbound investment contributed to the elevated activity from PE in Q2.
Inbound transactions included Ardenton Capital Corporation, a Canada-based PE firm, taking an undisclosed majority stake in Food Innovations, the UK-based supplier of baking products, for an undisclosed consideration. The acquisition comprises the Doric Cake Crafts, Doric Crimped, Doric FPD and Food Innovations brands.
Elsewhere, China-based investment firm Hillhouse Capital Management supported the secondary buy-out of Loch Lomond, for an estimated consideration of £400 million. Loch Lomond is an international producer of malt, blended and grain whisky, as well as Glen’s Vodka and Ben Lomond gin, with 70% of its revenues generated from over 100 international markets. Hillhouse will help Loch Lomond further its international presence, especially in Asian markets where whisky and other premium spirits are seeing increased demand and interest. The deal provided an exit for Exponent Private Equity who had supported the buyout of Loch Lomond in 2014.
Outbound investment included Mid Europa Partners acquiring an undisclosed majority stake in Mlinar, a Croatia-based wholesaler and retailer of bakery products.
PE houses backing bolt-on acquisitions to portfolio companies were TSG Consumer Partners, whose investee company BrewDog acquired a brewery and taproom in Berlin from Stone Brewing; and Bridges Ventures supported Wholebake in its acquisition of Bounce Foods, rescuing the protein ball maker from administration.
Domestically, the pet food sector remains highly attractive to the PE community. NVM provided £2 million investment to Pure Pet Food, a producer of natural pet food products using low processed recipes, targeted at pets suffering with ailments and sensitivities. Dogmates (which trades as Butternut Box), received £15 million in funding from a group of investors including Five Seasons Ventures Sarl, Passion Capital and Literacy Capital. Butternut Box is a provider of fresh, home cooked dog food to UK homes. With revenues forecast to grow by 300% this year, Butternut Box plans to use the latest funding to diversify into snacks, toys and wellness products, expanding into Europe.
Spotlight on sectors
The snacks sector has seen a high level of activity in Q2 2019, in line with the consumer trends of food-on-the-go, wellness and indulgence. The acquisition of Bounce will boost Wholebake’s branded snack offering as well as bringing synergies across Bounce’s operations in the UK and Europe.
Healthy snacking company Ape Snacks, which produces coconut-based bites, puffs and curls, was acquired by food entrepreneur Ben Arbib in November 2018. The founder of the plant-based food and drink producer Rebel Kitchen also acquired fruit and vegetable crisps company Emily Crisps in April 2019. The newly formed group has been renamed Nurture Brands, with a focus on plant-based snacks, and a strategy to further develop the complementary brands and add new products. In the non-plant arena, biltong and jerky manufacturer Meatsnacks Group was sold to Australia-based entrepreneur Tony Quinn, to join the Kings Elite brand, which was acquired in 2018 as part of New World Foods. While Meatsnacks and Kings will continue to operate as separate businesses, the deal unites several of the UK’s leading meat snacking brands and the companies will benefit from longer-term synergies. Finally, Business Growth Fund acquired an undisclosed minority stake in popcorn maker Joe & Seph’s.
M&A in the alcoholic drinks sector continues to show no let-up. Across all categories and channels, 14 deals were recorded in Q2 2019, representing 26.4% of the quarter’s deals. This compares with a still robust 10 deals in the first quarter (18.9%).
In addition to the Loch Lomond whisky deal, other transactions in the spirits space included The Lakes Distillery Company receiving £3.5 million of investment, True North Brew Co’s acquisition of Leeds Gin, and Stock Spirits Group’s acquisition of Czech Republic spirits producer Bartida.
Activity in the craft beer sector is ongoing. Active Partners acquired a circa 25% shareholding in Leeds-based brewery Northern Monk. Founded in 2013, and already exporting to 23 countries worldwide, the investment is intended to further grow distribution, increase brewing capacity and expand Northern Monk’s bar footprint.
The period also saw C&C Group take a minority stake in Cornwall-based craft beer Jubel. The fruit-infused beer brand launched exclusively in the on-trade market in Cornwall in April 2018, subsequently gaining huge traction with 300 listings in their first three months as well as listings with Fullers pubs, Selfridges and Sainsbury's. C&C Group will help drive Jubel’s distribution in the UK and Ireland.
Other transactions tapped into the growing trend and demand for drinks with a healthier profile. Mosaic Private Equity acquired a 37.5% stake in low-calorie drinks producer Skinny Brands for an undisclosed sum. Skinny Brands is the creator of Skinny Lager – 4% proof and 89 calories per bottle – alongside Skinny Cider and a range of ready-to-drink cocktails. To date, Skinny Lager has secured listings in the major multiples as well as Amazon and Ocado, the on-trade market and 12 overseas markets.
And AG Barr obtained a foothold in the alcohol-free spirits market with the acquisition of a 20% stake in Stryyk owner Elegantly Spirited, for £1 million. As part of the agreement, AG Barr’s subsidiary Funkin will act as exclusive UK distributor for all of Elegantly Spirited’s products, which was created by the original founders of the Funkin business.
In alcoholic drinks distribution, Luxembourg-based spirits company Amber Beverage Group (ABG) (part of SPI Group), acquired the remaining stake in UK drinks distributor Cellar Trends, to take full ownership. Portuguese company Sogrape Vinhos took a further significant stake in UK importer Liberty Wines, alongside Piper and Charles Heidsieck. Elsewhere, Societe Jacques Bollinger, the family group behind Bollinger Champagne, formed a strategic partnership with a minority investment into specialist fine wine merchant BI Wines & Spirits.
Finally, the catering sector has seen a strong level of M&A activity so far this year, with five deals apiece in each quarter (9.4% of deals each period). UK-based global catering group Compass Group has accounted for 50% of that activity, with five deals announced so far this calendar year. Its most significant deal was the £424 million acquisition of Fazer Food Services, a deal requiring EU Commission competition approval. Fazer employs 7,000 people at more than 1,000 sites across Finland, Sweden, Norway, Denmark and Estonia, giving Compass a stronger foothold in Scandinavia. 2019 has also seen Compass extend its footprint in the UK (Dine Contract Catering), France (Restauration Collective Casino SA), Belgium (Good Invest) and the USA (Company Kitchen). CEO Dominic Blakemore has publicly stated the Group’s ongoing M&A ambitions, with bolt-on acquisitions sought in the US, Europe and the UK.
In Q1, catering and hospitality group Westbury Street Holdings sold an undisclosed majority stake to US PE house Clayton, Dubilier & Rice, for an estimated enterprise value of £780 million. The deal has been followed with fellow UK catering group CH&CO undergoing a secondary buy-out, transferring its PE ownership from MML Capital to Equistone Partners. CH&CO provides contract and hospitality catering services to a broad range of sectors including workplaces, venues, tourist destinations, independent and state schools, further education, healthcare and events. The company has a prestigious client portfolio including some of the UK’s leading companies, charities and organisations and has held a Royal Warrant for the provision of catering services to HM Queen since 2013.
Challenging the more traditional players in the catering industry, Foodles raised a further €9 million in funding. The France-based company provides canteen-like services using connected fridges and daily deliveries, currently delivering around 5,000 meals per day to 50 companies that have signed up to its service.
In this macro-economic environment, it is reassuring to note the ongoing resilience of M&A in the sector. While Q2 has seen a slight reduction in inbound M&A and a corresponding pick-up in domestic deals, outbound M&A remains strong. Whether through increasing export channels and volumes, or M&A, UK-headquartered businesses seem to more aware than ever of the need to look to international markets as the Brexit deadline edges closer.
While 2019 commenced with a quieter period for PE investors, it was never a question that PE appetite in the sector had gone away, and investment activity has rebounded strongly in Q2. As we have commented previously, in an uncertain market food and beverage business owners are increasingly seeking a cash-out deal or partial exit, and this pick-up correlates in part with greater volumes of PE investment.
With deal activity at the larger end of the scale remaining fairly dormant, deals continue to be more prolific at the lower-mid end of the market. This is also being driven by the ongoing arrival of new entrants to the sector: innovative, disruptive and fast-growing due to their connection with shifting consumer trends. It is no surprise that these disruptive businesses soon attract the attention of investors. From alcohol-free spirits through to vertical farming, vegan snacks and personalised pet food, the sector shows no let-up in innovation. It remains a challenging but exciting time for the sector.
All deal activity is based on announced date of the deal and includes deals where there has been any UK or Ireland involvement (target and/or acquirer). Administrations, liquidations and receiverships are collated but not counted as M&A unless they have subsequently been acquired.
Deal values are primarily sourced from corporate websites, however, if no press release is available they are sourced from deal databases including BvD Zephyr and mergermarket or from press commentary released at the time of the deal. Deal values may subsequently be amended pending earn outs or other finance arrangements and/or as further detail is released by the acquirer.