New research from leading business and financial adviser Grant Thornton UK LLP reports a strong final quarter in 2020 for M&A activity in the food and beverage sector, as deals continue to rise following an initial lull at the onset of the COVID-19 pandemic.
The firm’s latest analysis reveals that there were 55 transactions recorded in the sector in the final quarter of 2020. This continues an upward trend in deal volume since the start of the pandemic (27 deals in Q2, 34 in Q3) and is a 12% increase compared to the same quarter in 2019. Despite a strong performance in the last quarter, overall, 2020 saw a 25% decline in food and beverage deal activity compared to 2019, dropping from 215 deals (2019) to 160 (2020).
Total disclosed deal value for Q4 2020 was strong at £9.6 billion. This was bolstered by two, still pending, mega-deals: Walmart’s £6.8 billion sale of ASDA to TDR Capital and EG Group, and Coca-Cola Europe’s £1.3 billion acquisition of its remaining shareholding in Coca-Cola Amatil. Even with these mega-deals excluded, disclosed deal value in Q4 2020 (£1.6 billion) increased significantly compared to the same period the previous year (Q4 2019: 94% increase) and Q3 2020 (147% increase). Total disclosed deal value, including the two mega-deals, for 2020 was £12.6 billion, a significant increase on 2019 which recorded £8.8 billion.
Appetite from overseas investors for UK and Irish companies bounced back in Q4 2020 accounting for 10 deals (19%), a 233% increase compared to Q3. But domestic activity dominated the quarter with 60% of deals involving UK and Irish companies acquiring a local entity. Overall in 2020, the domestic to cross-border activity ratio was 59:41, keeping it in line with previous years (58:42 in 2019 and 56:44 in 2018).
The analysis found that private equity (PE) activity was particularly prevalent in Q4 2020 with 24 deals - the highest number of PE transactions in any quarter in 2020, and an increase of 118% on Q3. It also marks a 71% increase on the same quarter in 2019. For the entire year, private equity deal volume was up 24% on 2019, recording 66 deals, and was at its healthiest level since 2016.
There were just four food and beverage insolvencies (excluding bars and restaurants) reported during Q4 2020. This marked no movement on Q3, likely due to ongoing government financial support measures supporting businesses in the sector.
The report also finds that, as 2020 progressed, so did interest in lockdown-compatible trends, such as pet food, health and wellness, and alcohol companies. Health and wellness, a well-established pre-coronavirus trend in the sector, accounted for eight deals in Q4 2020. Unsurprisingly, over the entire year, deal activity was found to be subdued in wholesale and distribution (down 79% versus 2019) and catering (down 90% versus 2019).
“We’ve seen a strong final quarter for M&A activity in the food and beverage sector to round off a year that has upended consumer behaviour and caused the sector to think on its feet. There was a flurry of activity as investors resumed deals that had been paused at the beginning of 2020 due to coronavirus. A few lockdown-free months in the summer meant in-person due diligence was possible and, as the year progressed, the business world also became more comfortable with remote working which enabled more deals to cross the line.
“Coronavirus has caused the biggest shake-up in consumer habits since World War II and, given the UK hospitality industry was all but closed for several months, 2020’s M&A figures are a triumph. It's also worth noting that 2020 deal activity has topped each of the three years following 2008’s credit crunch, the country’s last major economic shock. This is a good indication for a strong recovery and demonstrates the sector’s resilience and attractiveness to investors. It's encouraging that large corporates have remained active (for the right assets), with Diageo, Ferrero, Baxters and Unilever having made multiple acquisitions this year.
“We expect a robust start to 2021 as delayed deals continue to complete and sellers try to beat the anticipated rise in capital gains tax. Three main themes are likely to influence deal activity in the coming months - consumer habits, Brexit and restructuring. Certainty (or lack thereof) will continue as a theme in 2021, though a Brexit deal and a vaccine programme provide firmer footing. Whatever lies ahead, 2020 has highlighted the strength and resilience of the UK food industry and we anticipate a similar, if not better, performance in 2021.”