According to the latest research from leading business and financial adviser Grant Thornton UK LLP, deal activity in the food and beverage sector remained steady in the third quarter of 2018.
Grant Thornton’s latest food and beverage insights report found that 48 deals took place in the food and beverage sector in Q3 2018; a small decrease of 7.7% compared to the previous quarter which recorded 52 transactions.
Despite fewer deals in Q3, deal value showed a slight increase, up 1.5% compared to the previous quarter. However, at £2.9 billion, cumulative deal value for 2018 to date was significantly lower than 2016 and 2017, which were £6.2 and £13.7 billion respectively. This is largely due to the lack of mega deals seen so far throughout 2018. The biggest deal in Q3 2018 (and overall in 2018 to date) was Diageo increasing its stake in China’s Sichuan Shuijingfang Company. The 20.29% stake was valued at £619 million.
Q3 2018 saw 10 transactions involving private equity (PE) investment, which reached a total disclosed deal value of £304.6 million. PE deals in the quarter accounted for 20.8% of total deal activity; a fall on the 30% seen in the previous quarter.
Domestic deals continue to account for the majority of transactions in 2018, with Q3 seeing nearly 60% domestic deals. There was a slight pick-up in UK/ Irish companies acquiring overseas (11 deals), compared to nine transactions of an inbound nature.
In line with previous quarters, the alcoholic drinks sector continues to be a catalyst for M&A activity in the sector, with eight deals taking place. The quarter also saw a number of deals in the bakery sector with the growing demand and popularity of gluten-free baked goods acting as a key driver in Finsbury Food Group’s £17 million acquisition of Ultrapharm.
Trefor Griffith, head of food and beverage at Grant Thornton UK LLP, commented on the findings: “Despite a slight decrease, the level of deal activity this quarter has followed the trend that we usually see over the summer months, where deal activity tends to slow. However, M&A appetite in the sector remains strong despite the ongoing uncertainty caused by Brexit.
“With Brexit edging ever closer, the UK government and businesses are increasingly focused on how international trade will change once the UK leaves the European Union. There are many unknowns around impacts on supply chains as a result of security issues and customs controls and additional widespread concerns around delays at borders, particularly for short-shelf life goods.
“With uncertainty the buzzword, we would firstly encourage all businesses to implement a Brexit plan and ensure that a key aspect of this is to achieve Authorise Economic Operation (AEO) accreditation. Trusted traders are a central part of the government’s Brexit white paper, in a bid to ensure that cross-border trade remains as frictionless as possible. Worryingly though, the UK is a long way behind other EU countries in the number of businesses with AEO accreditation. The UK has just over 10% of the volume seen in Germany, showing the need for a strong push from UK businesses to achieve this.
“Achieving AEO status is a ‘no-regrets steps’ as, irrespective of the Brexit outcome, many of the benefits are still available. AEO status can equip businesses to deal with potential issues that may arise in the aftermath of Brexit, particularly the concerns on the delays in clearing ports.
“No one currently knows what Brexit will bring but all that business can do is plan and prepare as best as possible and take steps now to help mitigate known risks.”