According to the latest research from leading business and financial adviser Grant Thornton UK LLP, deal activity in the food and beverage sector has slowed in the first quarter of 2018.
Grant Thornton’s latest food and beverage insights report found that 36 deals took place in the food and beverage sector in Q1 2018; a 28% drop compared to the previous quarter which recorded 50 transactions.
There were just 15 deals with deal values in the public domain in Q1, producing a total disclosed deal value of £710 million. This is a substantial drop compared to Q4 2017 which achieved a disclosed deal value of £7.7 billion, as a result of the sale of Unilever’s spread business which contributed £6 billion. With the absence of any mega deals over £1 billion, the first quarter of 2018 marks the lowest total disclosed deal value in comparison to the past six quarters.
While overall deal numbers have dropped, there remains strong appetite from private equity (PE) investors. This quarter, 28% of deals in the food and beverage sector involved PE investors, compared to 22% in Q4 2017.
Increasing interest from overseas investors has been an ongoing trend in the sector but Q1 2018 saw a slight dip in activity, dropping from 49% of deals (Q4 2017) to 42% (Q1 2018). Overseas buyers for UK/Irish assets in this quarter mostly originated from Europe and the USA.
The alcoholic drinks sector continues to be an important driver of M&A activity in the sector, with 5 transactions recorded this quarter. Consumer demand for both healthy and premium snacking continues to grow and deal activity looks set to keep apace, with 3 deals recorded in the snacks sector this quarter.
Trefor Griffith, head of food and beverage at Grant Thornton UK LLP, commented on the findings: “While the level of overall deal activity has dropped this quarter, it is encouraging to see that interest from private equity investors continues. The key drivers behind deal activity remain and we do not expect this dip to continue into 2018. There is no slowdown in underlying activity and it is clear that, despite the ongoing uncertainty, the food and beverage sector remains open and of interest to investors.
“With less than half of deals with publically disclosed deal values and no mega-deals to report this quarter it is not surprising to see that total disclosed deal value dropped significantly. But as per the recent announcement of Sainsbury’s’ intended mega-merger with ASDA, consolidation amongst the big players will surface every now and then. It will be interesting to see how the sector responds to the move and what other announcements emerge this year.
“The ongoing uncertainty around Brexit continues to present challenges. But despite the continued lack of clarity in the market, there are steps food and beverage businesses can take to ensure they are properly prepared for a wide variety of Brexit scenarios. Businesses should be focusing on insulating their balance sheet, assessing the impact on their supply chain and reviewing their international growth strategy. From optimising processes to investigating new and existing markets, Brexit needn’t be the ogre it is often portrayed as. In fact, if approached correctly, there are significant growth opportunities for F&B companies going forward.”