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M&A in the food and beverage sector remained strong in 2018

Analysis from leading business and financial adviser Grant Thornton UK LLP, has found that deal activity in the food and beverage sector remained strong in 2018.

Analysis from leading business and financial adviser Grant Thornton UK LLP, has found that deal activity in the food and beverage sector remained strong in 2018.Grant Thornton’s latest Food and Beverage Insights report recorded a total of 209 transactions last year, compared to 202 in 2016 and 215 in 2017. This equates to a fall of just 2.8% on the previous year’s M&A activity.

The final quarter of 2018 concluded strongly with 58 deals, an increase of 13.7% on the 51 deals in the preceding quarter. Q4 also registered the highest total disclosed deal value for the year, recording £4.59 billion across 14 deals.

The £3.19 billion acquisition by Unilever of GlaxoSmithKline's (GSK) health food drinks portfolio in India, Bangladesh and 20 other predominantly Asian markets helped elevate this total. Removing this mega-deal from the analysis equates to a disclosed deal value of £1.39 billion, still the most lucrative quarter of 2018, with £1.12 billion in Q3 a close second.

2018’s total disclosed deal value saw a more pronounced year-on-year decline at £7.5 billion, compared with £21.7 billion in 2017. The major cause of this fall lies in the absence of sizeable transactions in 2018. In 2017, the sector boasted five transactions valued at more than £1 billion, including Tesco’s £3.6 billion acquisition of Booker and the £6.2 billion sale of Unilever’s spreads business. However, 2018’s deal value is not far behind that of 2016, which stood at £8.4 billion.

Q4 2018 marked a significant up-take in the volume of cross border transactions, with cross border deals just tipping the balance ahead of domestic deals (52%). There were 15 deals in which overseas companies acquired in the UK/ Ireland, matched by 15 UK/Irish companies concluding transactions overseas, and 28 domestic deals.

Of the deals involving overseas buyers, 67% of acquirers were of European origin (30 deals), a marked increase compared to 51% in 2017 and 44% in 2016. There was, however, a notable fall in Asian acquirers this year, with just three deals - a significant drop on 2017’s eight transactions.

Q4 2018 concluded with 11 private equity (PE) deals, matching the previous quarter’s level. This brings the PE tally for the year to 49, compared to 38 in 2016 and 44 in 2017, representing an 11% increase on 2017.

The alcoholic drinks sector continued to see a high level of M&A, accounting for 14.8% (31) of 2018 deals; a similar level to 2017 at 16.5%.

Trefor Griffith, head of food and beverage, Grant Thornton UK LLP, commented:

“Last year’s deal activity shows how interest in the food and beverage (F&B) sector remains strong. In particular, F&B businesses continue to attract interest from private equity buyers and cross border appetite remained in both directions in 2018.

“Irrespective of broader macroeconomic and political headwinds, deal volumes will always fluctuate one quarter to the next. While the outcome of the EU referendum vote has not changed that pattern, some quarters since June 2016 have demonstrated a more pronounced dip in deal volume. More recently, activity has stabilised again and overall the message is clear - Brexit has not affected M&A activity in the sector as initially feared.

“In fact, deal volumes in 2018, and since 2015, have been some of the highest ever recorded compared to the preceding 10 year period. Levels are almost double that recorded in 2009 - when M&A activity following the financial crisis of 2007 was significantly subdued. That period, like the one today, was a time of immense uncertainty and both consumer and investor confidence were at rock bottom. But there is one key difference: the financial environment is not a barrier to M&A as it was a decade ago, as access to cash or debt is not a constraint.

“While Brexit has inevitably caused some strategic agendas to be postponed, in other instances it will have served as a catalyst for M&A. Some overseas companies have engaged in M&A to establish or strengthen a UK footprint prior to the UK’s exit from the EU. Outbound M&A has also picked up as UK F&B companies look to increase their routes to market, alongside developing export channels.”

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