We review the sector trends and key merger and acquisition activity in the food and beverage industry over the past quarter and year overall.
2019 concluded with 491 deals in the final quarter, a slight fall of 7.5% on the 53 deals in the preceding quarter. However, Q4 was the quarter with the highest total disclosed deal value for the year; £3.8 billion2 across 13 deals.
This total was inflated by the mega-deal that landed in the last quarter, that of Froneri’s agreement to acquire Nestlé USA’s ice cream business for a consideration of just over £3 billion, the sole mega-deal of 2019. Removing this deal from the analysis correlates to a total disclosed deal value of just £792 million for the quarter, which renders it the quarter with the lowest disclosed deal value of the year and one of the lowest in the past few years.
The addition of 49 deals brings the total tally for the year to 215, compared to 213 deals in 2018 and 217 in 2017. With a total disclosed deal value of £8.8 billion for 2019, while this is ahead of 2018 (£7.5 billion), it continues to trail significantly behind the boom year of 2017, which recorded £21.7 billion in deal value.
Mega-deal activity continues to be impacted by the fragile macro-economic environment, and recent years have also recorded a heightened level of distressed M&A. According to our analysis, there were 14 deals in 2019 where companies were acquired out of administration; with Q4 alone accounting for nine of those transactions. This means that 18.4% of transactions in Q4 2019 involved companies being saved from administration, equating to 6.5% for the year overall.
Q4 recorded a significant fall in cross-border activity and a corresponding boom in domestic deals (71:29), and the quarter experienced the lowest level of cross-border activity seen in the past few years. This represented a radical reversal on the previous quarter, in which cross-border activity was high and inbound investment had dominated. 30% of deals in Q3 involved an overseas party acquiring a UK/Irish asset (16 deals). In Q4 2019, just five deals (10%) entailed inbound investment. While cross-border activity fluctuated quarter-by-quarter in 2019, the overall ratio of domestic to cross-border activity for the year was 58:42, which is not dissimilar to 2018’s 56:44 and previous years.
2019 brought a more geographically diverse pool of inbound acquirers. In 2019, 50% of overseas acquirers were of European origin, 27.1% North America, 12.5% Asian, and the remaining 10.4% from South Africa, South America and Australasia. In 2018, European (66.7%) and north American acquirers (25.6%) dominated the mix, accounting for 92.3% proportionally of overseas acquirers.
Once more, Europe topped the destination list for outbound transactions, accounting for almost 50% of deals, a slight increase on the 42.6% seen in 2018. Notably, there was a pick-up of UK/Irish companies investing in Africa, Australasia and South America (accounting for 24.4% compared to 17% in 2018), but there was a drop in investment in Asia, with just four deals in 2019 versus nine in 2018.
Q4 2019 concluded with 14 private equity (PE) deals, just north of the previous quarter’s tally (13) meaning that 28.6% of deals in Q4 had a private equity angle. Transactions in Q4 included BGF’s investment into wine wholesaler Off-Piste Wines, True Capital Partners’s investment in Australian health foods group Soulfresh Global Pty Ltd, and Bridgepoint’s acquisition of Dutch catering group Vermaat NV.
The contribution of Q4’s 14 deals brings the PE total for the year to 53, the highest level of M&A investment in the sector in our past 10 years of analysis. This also represents an 8% increase on the level of PE investment in the sector in 2018, with 49 deals. It equates to 24.7% of transactions in 2019 having PE involvement (either a stand-alone investment or a follow-on acquisition as part of a buy-and-build strategy) – compared to 23% in 2018 and 20.3% in 2017.
As seen time and time again, the presence of one or multiple mega-deals naturally inflates the total disclosed deal value. In Q4 and therefore 2019 overall, PE investment is skewed value wise by the £3 billion PAI-backed acquisition of Nestlé’s US ice cream operations by portfolio company Froneri.
Froneri was created in 2016 as a joint venture between PAI Partners and Nestlé, forming the second-largest manufacturer of ice cream in Europe, the third-largest worldwide and the number-one private label producer worldwide. The acquisition of Nestlé’s US ice cream business, the second-largest ice cream manufacturer in the US, bestows Froneri a footprint in the US and promotes it to the number-two player globally, with revenues in excess of USD 10 billion per annum.
Extracting this deal from the data in Q4 2019, means that PE investment in the quarter stood at £766 million, which is still almost double the level of the three preceding quarters. As the chart opposite demonstrates, while disclosed deal value can fluctuate significantly quarter-to-quarter or year-on-year, there is a clear and consistent upward trajectory of PE investments in quantum.
The food and beverage sector remains highly attractive to many PE investors, with several houses making multiple investments in the year. Serial investors in 2019 included CapVest, Equistone Partners, Exponent Private Equity and Foresight Group, each concluding three deals in 2019.
CapVest supported portfolio company Valeo Foods in its acquisitions of snack producers Kettle Foods in the UK and Yellow Chips in the Netherlands for a consideration of circa £66 million, and Christmas pudding-maker Matthew Walker from Boparan Holdings, for a consideration of £67 million. In 2019, CapVest also backed Karro Food Group in its acquisition of Young’s Seafood, for an estimated consideration of £175 million.
Exponent Private Equity initiated a consolidation play in the fragmented ethnic foods sector with its acquisitions of TRS and East End Foods in 2019. It also supported portfolio company Meadow Foods in its buy-and-build strategy in the ingredients sector, with the acquisition of food decorations producer Nimbus Foods.
At the smaller end of the spectrum, Foresight’s investments in 2019 in the F&B sector consisted of high protein porridge brand Oomf, bespoke high-end chocolate manufacturer Firetree Chocolate and halal baby food manufacturer For Aisha.
The ongoing consumer trends such as plant-based foods and “low/no” sugar/alcohol etc., continue to drive M&A in the sector. In December 2019, Australia-based food and beverage group Soulfresh received a total of £30 million investment from PE company True Capital, who provided £26 million with the remaining capital raised from a vehicle belonging to investor and philanthropist George Soros. Soulfresh’s brands include Lo Bros (kombucha drinks), Nutty Bruce (plant-based milk alternatives), Pico (organic vegan chocolate) and Eaty (plant-based alternative meat product). In the UK, stockists include Sainsbury’s, Ocado and Amazon.
In a similar vein, in October 2019, Nurture Brands, the plant-based group formed by the merger of Ape Snacks and Emily Crisps, acquired and merged with alternative milk company Rebel Kitchen. Nurture Brands owner and founder Ben Arbib commented that the merger creates the largest plant-based snack and drinks maker in the UK. Rebel Kitchen, founded in 2014, produces healthy, plant-based milk alternatives, with stockists including Waitrose, Whole Foods Market, Ocado, Planet Organic and Joe & The Juice.
Also in Q4, Clearly Drinks, with backing from NorthEdge Capital, acquired Revolution Waves, a manufacturer of low-calorie drinks, while Oppo Brothers, a UK-based manufacturer of low-sugar ice cream and cheesecakes, sold an undisclosed stake to Swiss PE investor HP Wild Holding AG. Founded in 2014 by brothers Harry and Charlie Thuillier, Oppo’s products are now sold in 10 countries outside of the UK, accounting for 60% of its annual revenues.
Other deals in the soft drinks sector included Raylex Brands’ acquisition of cold-pressed juice maker Wow Drinks, the sale of Britvic PLC's private label juice business to Refresco Europe BV, and the rescue of smoothie brand Savsé from administration by Life Health Foods.
The interest in plant-based and alternative meat products shows no let-up. "Veganuary" 2020 saw 400,000 people sign up to the campaign, an increase of 37.5% by 2018’s 250,000. Deals in 2019 included Channel Four Television Corporation acquiring a stake in The Meatless Farm, VBites acquiring vegan food manufacturer Onist, and US PE house Goode Partners acquiring Ireland-based vegetarian frozen food manufacturer Strong Roots. While the sector continues to see lots of start-ups due to relatively low barriers to entry, M&A is inhibited by a lack of targets with scale that have not already been snapped up. As we venture into 2020, processes are rumoured to be underway for a stake in alternative meat producer Quorn Foods, as well as vegan food producer GOSH!.
The alcoholic drinks sector is still dominating M&A in 2019, with 31 deals (14.4%), compared to 15% in 2018. Q4 deals included the sale of a stake in premium gin brand Brockmans to former Diageo CEO Paul Walsh and the sale of a 60% stake in Glendalough Irish Whiskey to Mark Anthony Brands International, for an estimated consideration of £10 million.
Diageo continues to keep abreast of ever-shifting consumer demands and trends through strategic acquisitions. Addressing the growing popularity of cocktails and interest in innovative products, Diageo acquired pre-mixed cocktail producer Tipplesworth in December 2019. Its range of products includes cocktails supplied on draft to the on-trade, using proprietary technology that allows pre-mixed cocktails, such as Espresso Martini and Passion Fruit Martini, to be served at speed, consistently and on a large scale. Currently available on tap in around 100 outlets across the UK, Diageo plans to roll out Tipplesworth’s on-tap offering to the on-trade across the country.
However, the overriding trend in the alcoholic drinks sector is that of no- and low-alcohol alternative drinks as many consumers, and in particular younger generations, are seeking to drink less or adopt a tee-total lifestyle. Recognising the importance of this trend, Diageo increased its stake in 2019 in non-alcoholic spirits brand Seedlip to an undisclosed majority shareholding, further to the initial 20% stake it acquired in 2016 through its venture arm Distill Ventures.
Both the drinks giants and start-ups have jumped on the band-wagon in the past few years and the sector has seen a raft of new entrants and products in the non-alcoholic drinks category come to market, from spirits to ready-to-drink formats. Other deals in 2019 included soft drinks group and Irn-Bru owner AG Barr’s acquisition of a stake in alcohol-free spirits producer Stryyk, and Mosaic Private Equity’s investment in low-calorie lager producer SkinnyBrands.
2019 brought eight deals in the pet food sector, a 50% increase on the volume in 2018. Transactions in 2019 included Pets Choice’s acquisitions of both Rufus Foods and the assets and brands of Bob Martin (UK) Ltd, for a total consideration of £3.9 million, from administration in November 2019. The deal will see brands such as Clear, Clear Plus and cat litter brand Felight unite with Pets Choice’s 10-strong brand portfolio of premium animal foods and treats, such as Meatiful, TastyBone and Webbox.
The ongoing humanisation of pets continues to drive sales in premium pet care products, and likewise, boost M&A. Other deals in the year included NVM Private Equity providing £2 million investment to Pure Pet Food, a producer of low processed natural pet food.
In 2020, a raft of pet food brands and their PE backers are rumoured to be reviewing their strategic options, with sales processes reported to be underway or imminent. Nestlé is reported to be a serious contender for L Cattertonbacked Lily’s Kitchen, with anticipation of a circa £150 million valuation. Other transactions in the pipeline include Armitage Pet Care (backed by Rutland Partners since 2017), Forthglade Foods (supported by Piper Private Equity since 2015) and MPM Products (majority owned by ECI Partners since 2016).
The catering sector has experienced various waves of consolidation over the years, with a notable pick-up in 2019. According to our analysis, there were 20 catering deals in 2019, accounting for 9.3% of the total deal volume. This equates to an 82% increase on the 11 deals in 2018.
Compass Group PLC undertook a major acquisition spree in 2019, with six deals. 2019 acquisitions included Belgium based catering company Gourmet Invent NV, US-based foodservice management services provider Company Kitchen LLC, UK contract catering services provider Dine Contract Catering, and French catering services provider Restauration Collective Casino SASU. Most significantly, in June 2019, Compass announced the proposed acquisition of Fazer Food Services, a leading food services business in the Nordics, for an enterprise value of approximately EUR 475 million, which will significantly enhance Compass’ existing footprint in Finland, Sweden, Norway and Denmark. The deal received EU Commission competition approval in January 2020.
Other UK groups undertaking outbound M&A in the catering sector included Bridgepoint, which acquired Vermaat Groep BV, a leading Netherlands-based provider of premium outsourced catering services to various markets including corporates, museums, hospitals and travel hubs. With the support and resources of Bridgepoint, Vermaat plans to further develop its German presence and to enter new markets across Europe. The deal was reported to have an enterprise value in excess of EUR 750 million. Elsewhere, Rhubarb Food Design, backed by Livingbridge since 2016, acquired Access Food & Beverage Inc. (trading as Sonnier & Castle), a premium catering provider based in New York City.
Also seeking to consolidate the fragmented outsourced catering market was leading contract catering group CH&CO, which accounted for four of the 20 deals. CH&CO provides contract and hospitality catering services throughout the UK to a broad range of sectors including workplaces, venues, tourist destinations, independent and state schools, further education, healthcare and events.
May 2019 saw CH&CO’s PE ownership shift from MML Capital to Equistone, which supported the secondary management buy-out of CH&CO. Under the helm of CEO Bill Toner, CH&CO is continuing to pursue an inorganic growth strategy with its new investor. With MML’s support, CH&CO brought Harbour & Jones and Concerto Group into the fold in 2017. Since the deal in May, Equistone has already supported two bolt-on acquisitions. In August 2019, CH&CO acquired Mitie PLC’s workplace catering and events businesses, comprising Gather & Gather and Creativevents. CH&CO paid a total cash consideration of £79 million, with a potential further £6 million within four years of completion, subject to the achievement of certain performance milestones.
The following month, it added Company of Cooks to its growing portfolio – a niche caterer focused on the visitor attraction and cultural sector, whose clients include RHS Wisley, the Royal Opera House and the National Portrait Gallery.
F&B operators need no reminding of the precarious environment in which they operate. It has been reported that the number of food, drink and tobacco suppliers filing for some form of insolvency procedures increased by 70% in 2018 compared with 2015. The loss of a key contract, a product recall, complications surrounding Brexit, increasing competition and shifting consumer trends can have a detrimental impact.
2019 witnessed some particularly high-profile administrations and collapses. Some were acquired from administration, such as smoothie maker Savsé, Thomas Tucker popcorn, sausage brand Porky Whites, Emily Crisps, Bounce Foods, Hop Stuff Brewery, baby food brand Babease and event catering company Admirable Crichton. For others, such as milk supplier Tomlinsons Dairies, catering butcher Nigel Fredericks and dessert brand Pudology, the outcome was finite.
As noted above, the operational environment for F&B companies remains immensely challenging. And on top of this are the broader macroeconomic headwinds at play, with a slowing global economy, the US-China trade war, the ongoing uncertainty surrounding Brexit, and now the concern around the coronavirus outbreak and its impact.
In recent years, we have seen vendors stalling sales processes and some overseas buyers have been wary to acquire UK targets until there is more clarity regarding Brexit. As noted over the past few years, mega-deal M&A has been hardest hit, with just one £3 billion deal in 2018 and 2019 respectively. Deal activity continues to focus on the small-to-mid market, and with 215 deals in 2019, deal volume overall remains robust.
Despite the various challenges, M&A remains a key strategy for growth. Large conglomerates still need to review, rationalise and refresh their portfolios. Unilever for example, is reportedly exploring the sale of its global tea portfolio including the Lipton and PG Tips brands, and US-based Hain Celestial, is rumoured to be seeking to sell its Hain Daniels operations in the UK. At the other end of the spectrum, small disruptive players are being snapped up by larger groups, in order to “acquire” innovation. As also noted, there has been a rise in distressed M&A.
Shifting consumer trends continue to drive growth in certain categories, which in turn trigger M&A. The health and wellness agenda shows no sign of abating – from “low/no” through to plant-based products, as well as the demand for innovative, artisan and premium products.
As our analysis shows, PE investment in the sector is at a high and is likely to remain strong. At the end of the day, PE buyers have a substantial wall of money to invest and will always be attracted to a relatively recession-proof sector and one that remains fragmented, and therefore ideal for buy-and-build strategies.
Neither any of the long-term disruptive trends or uncertainty are going anywhere overnight, but the drivers for M&A in the F&B sector remain strong.
For more information, please get in touch with Nicola Sartori.