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Food and beverage market consolidation continues with healthy first quarter of M&A activ.....

Food and beverage market consolidation continues with healthy first quarter of M&A activity

The latest analysis from Grant Thornton UK LLP demonstrates on-going consolidation in the food and beverage market as businesses merge to future-proof themselves in a climate where only the strong survive.

Grant Thornton's review of food and beverage sector M&A deals completed in Q1 of 2015 shows that UK M&A activity began the year robustly, with a total of 37 transactions involving UK and Irish targets and/or acquirers. This is a similar level of activity to that recorded in the four previous quarters (an average of 41 transactions per quarter).

There was a drastic reduction in the number of deals with disclosed values. Given that deal values for larger transactions tend to be reported publically, it can be reasonably inferred that activity in the first quarter was dominated by the consolidation of small and medium sized targets, where there is a tendency for the deal financials to remain behind closed doors.

Trefor Griffith, Partner and Head of Food and Beverage at Grant Thornton, said:

"Brands are under pressure and producers are responding by taking a hard look at their businesses, both for the potential to become more efficient, but also to look at new routes to market and whether they have the right mix in their portfolios to be competitive in today's harsh environment."

"Portfolio optimisation, which involves companies both rationalising the size of their portfolios and also acquiring new, often faster growing businesses continues to be one of the key investment themes driving M&A activity in the food and beverage sector. 

"Examples of this are currently to be found mostly at the larger end of the market.  For example Nestlé, which has already divested its Spanish La Cocinera frozen meals business to Findus, is seemingly also nearing the sale of frozen food unit Davigel to Brakes.  Other groups also undertaking portfolio optimisation include Unilever, Kerry Foods, and 3G Capital with Heinz, and no doubt the newly formed Kraft/ Heinz group."

Appetite for convenience foods continues

Transaction volumes in food-to-go, deli specialities and snacks experienced a significant upturn last year, and the trend has continued in Q1 with 13.5 per cent of overall transactions in the deli/ convenience sector.  Transactions such as the sale of food-to-go manufacturer Adelie to private equity firm HIG Capital Europe are examples of this trend.

Overseas acquirers invest in western targets

Overseas acquirers, particularly from Asia, continue to demonstrate interest in western targets. Bright Foods' acquisition of the remaining 40% in Weetabix cemented its entry into both the UK and global food markets through the Weetabix brand.  This acquisition supports its strategy of buying well-known international brands with the aim of establishing strong competitive positions in each of its markets. Also during Q1, Israel’s Frutarom acquired UK flavours company Foodblenders, and other Asian groups continue to publically voice their interest in pursuing western targets.

Private equity remains stable

The level of private equity activity was relatively stable in the first quarter with six transactions, compared to seven in each of the preceding three quarters, although this was well below the Q1 2014 peak of 13 deals. While this may suggest the level of activity by financial sponsors has declined, we feel it is more due to timing and asset availability than a reduction in appetite. Notable transactions from Q1 include: the sale of Adelie to HIG Capital Europe, the acquisition of Nestlé’s South African ice cream business by R&R Ice Cream/ PAI Partners, the acquisition of Robertet’s Belgian division by MML Capital-backed Nactis Flavours and American Capital Equity's support of  SMG Europe’s acquisition of events caterer CGC.

To read the full Bite Size report please click here.