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News release

Increase in deal activity in food and beverage sector

New research from leading business and financial adviser Grant Thornton UK LLP has found that deal activity increased slightly in the third quarter of 2020, following a drop earlier in the year.

The firm’s latest ‘Food and Beverage insights’ report found that deal volumes recovered, to an extent, from a drop during the initial wave of COVID-19, with 34 transactions in Q3 2020, compared to 27 in Q2. However, this is still significantly lower than the number recorded in the same period last year (Q3 2019) in which 53 deals crossed the line.

While deal volumes increased in Q3 2020, total disclosed deal values saw a drop. The value of the 18 deals that were publicly disclosed in Q3 totalled £631.2 million; a 69% drop on the previous quarter, which contained a couple of particularly large transactions, such as the acquisition of Iceland Foods for £820 million. The largest disclosed deal in Q3 2020 was Diageo’s acquisition of Davos Brands and Aviation American Gin for £256 million.

The research found that there were only four reported food and beverage insolvencies in Q3 2020, compared to five in Q2. The food service sector was harder hit however, with 31 restaurant and café insolvencies recorded in Q3 (compared to six in Q2). This included some big brand names, such as Byron Hamburgers, and ASK and Zizzi owner, Azzurri Restaurants, which has since been acquired out of administration.

Private equity (PE) and venture capital interest in the food and beverage sector remained resilient in Q3, accounting for 11 out of 34 deals (32%, up from 30% in Q2). However, this is quite subdued compared to Q1 2020, which was an exceptional quarter for PE activity, in which 50% of the deals recorded involved PE investment.

Overseas investment saw a decline this quarter, with only 11% of acquisitions of UK/Irish companies involving overseas investment, compared to 26% last quarter. However, domestic activity saw a boost with 64% of acquisitions being made by UK and Irish companies acquiring local entities. The report states that this shift not only reflects the uncertainty that coronavirus has caused, but also the overhang of Brexit uncertainty.

The analysis also finds that the good-for-you trend had been building strong momentum in the sector over previous quarters and, in Q3, hit full tilt, accounting for the majority of deals recorded (59%). Activity was prevalent in healthy snacking, healthy children’s food, healthy (low) alcohol, and even healthy pet food.

Trefor Griffith, Head of Food and Beverage, Grant Thornton UK LLP, commented:

“We saw very few live deals completing during lockdown, so this quarter’s uplift comes as no real surprise as some of these deals came back to life when things eased. With an increasing number of businesses coming to market, a slow rebound is likely as we start to move into next year.

“It is clear though that the pandemic has resulted in a shift in consumer habits, and the challenge for the sector now will be in establishing by exactly how much and for how long. Investors will be seeking stability in the long-term trends in the sector, such as healthy eating and drinking. Companies that can combine these with the shopping habits of the post-coronavirus consumer will be attractive targets, as shown in this quarter’s acquisitions of meal-kit delivery companies Planty and Baked-In. It is also very likely that the switch to online buying will become a permanent one.

“In addition to the uncertainty caused by the pandemic, a lack of clarity on whether there will be an exit deal with the EU has continued to act as a handbrake on activity in the sector. The potential disruption caused by a no-deal Brexit and subsequent tariff arrangements would have a large impact on most parts of the sector.

“While investors will continue to be cautious, the food and beverage sector in the UK has shown incredible levels of resilience through this most difficult period and is evidently still seen as a safe area in which to invest, and we expect deal activity to slowly start to rebuild over the coming months.”