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Economic optimism continues to drive overall deal activity in the second quarter of 2014

Latest research from leading business and financial advisory firm Grant Thornton UK LLP confirms that the overall picture for deal activity in the second quarter is a positive one. Total food and beverage deal value rose significantly in Q2 2014, rising by 109% compared with the first quarter, and by 16% compared year on year.

In contrast, overall deal volume was down by 24% in Q2 compared to the previous quarter. Although when comparing the first half of 2014 with the same period in 2013, deal volumes were higher by 5% for 2014. Soft drinks and wholesale and distribution were the most active sub-sectors, each accounting for 17% of quarterly deal volume.

Distressed M&A activity declined by 38% between Q1 and Q2  2014, which is indicative of the stronger UK economic climate.

Private Equity (PE) deals fell by 42% for Q2 2014 compared with the previous quarter, this is largely down to the strength of activity in Q1. However PE deal volume  for the 2014 so far has already matched the whole of 2013.

Trefor Griffith, Partner and Head of Food and Beverage at Grant Thornton UK LLP, commented: “Continuing appetite is apparent among both potential acquirors and vendors in the food and beverage sector which is being driven by a more upbeat UK economy. Valuation multiples are rising, with the increase being driven partly by buoyant equity markets and by the availability of debt on borrower-friendly terms.

"From a thematic perspective, the second quarter provides further evidence for a number of the underlying trends that have been driving M&A activity in recent quarters, such as, portfolio optimisation by the large global players, geographic diversification and ongoing interest by PE.

"On the other side of the portfolio, the optimisation theme is evident in the buy and build strategies of many companies lower down the market capitalisation scale. Middle market companies are showing strong activity in building an optimal portfolio through acquisitions of complementary businesses."

Trefor Griffith continued: “These acquisitions offer opportunities to focus on new product development and further global footprint provided by a well-established brand. Such purchases can open up access into new product categories and increase global presence in areas a business is already familiar with."

The largest M&A deal this quarter was the £1.3billion acquisition of Unilever's Ragu and Bertoli pasta sauce brands by Japan's Mizkan Group.

Also expanding their global footprint, Cloetta, the Swedish confectionery company, acquired Dublin-based firm Aran Candy, which owns the Jelly Bean Factory brand, for €15.5 million (£12.6 million).

Within PE, R&R ice cream, which is owned by French PE group PAI partners, bought Australia's Peter's Food Group from its private equity owner, Pacific Equity Partners, for A$450 million (£247 million). Also in Q2, Purity Soft Drinks, which is backed by Langholm Capital, acquired Firefly Tonics. Langholm also provided backing for The Bart Ingredients Co.’s buyout of OTP Foods. Bart last year moved into wet ingredients with the launch of sauces and marinades. The acquisition of OTP, a specialist in wet ingredients, furthers Bart’s diversification strategy.