Buy or build, the innovation choice facing food and beverage finance leaders

Grant Thornton's Food & Beverage M&A Review for Summer 2026 recorded 105 transactions in the first half of the year, with buyers paying for exactly the kind of capability that sits behind that gap, reformulation know-how, supply chain resilience, and R&D strength in ingredients, health, wellness and bakery. The two data points, one from the deals market and one from the tax system, tell the same story.

The £100 billion sector claiming almost nothing

F&B isn't a small or peripheral part of UK manufacturing. It is the largest subsector by value and it is under constant pressure to innovate, reformulating for sugar and salt reduction, extending shelf life, adapting recipes for new dietary trends and reworking production lines to handle new ingredients or packaging formats.

Despite that, the sector claims a fraction of what its scale would suggest. HMRC’s latest figures show F&B manufacturers made just 1,035 R&D tax claims in 2023 to 2024, with claim numbers nearly halving in two years, a striking mismatch for a sector of this size and scale. The most common explanation isn't that the work doesn't qualify. It's that the skilled people doing the work don't see themselves as innovators. A food technologist adjusting a formulation to remove artificial preservatives without shortening shelf life is solving a genuine technical uncertainty. So is an engineer reworking a production line to handle a new plant-based ingredient, or a formulation team reducing sugar content while holding taste and texture constant. These are not marketing exercises or routine product tweaks; they are the kind of scientific and technological problems the R&D tax scheme exists to reward. 

This matters more now because the R&D tax regime has changed in recent years. HMRC's most recent statistics show total claim volumes falling by 26% and small and medium-sized enterprise (SME) claims falling further by 31%, while average claim values have risen as the R&D tax system shifts towards fewer, larger and better evidenced claims. This is precisely why the businesses building a real evidence base for their R&D, rather than treating it as an afterthought, are the ones best placed to claim with confidence.

What the M&A data is really telling us

Look again at the subsectors driving the most structurally significant dealmaking this half: ingredients, health and wellness, bakery, and pet food. In each case, the rationale buyers give is not really about revenue multiples; it is about capability.

Ingredient assets are being bought for supply chain durability and R&D strength, a direct response to years of raw material volatility that has made buyers unwilling to leave production to chance. Health and wellness acquisitions are being driven by the pull of protein, functional formats and category disruptors, brands that understand both the science behind their products and the growing community built around them. Bakery consolidation is partly about using scale to rescue margin in a segment that has faced years of declining demand and rising costs, as seen in ABF’s recent acquisition of Hovis.

In every one of these cases, a business is being bought, at least in part, for R&D and innovation capability that its own finance function may never have thought to fund through the tax system. That starts to highlight the disconnect. Buyers are placing a clear commercial value on innovation capability in the M&A market, while the same capability, built organically inside a business, often goes unclaimed and unrecognised in the tax return.

None of this is an argument against M&A activity. Acquiring a proven capability quickly, with an established team, intellectual property (IP) and customer relationships attached, is often the right strategic call. R&D tax relief won't replace that. However, it does change the calculation finance leaders should be running before they sign off on a deal.

If a business is paying a premium for a target's R&D strength, its reformulation expertise, or its process innovation, that premium should be weighed against what it would cost, and what relief would be available, to build an equivalent capability in-house instead. In many cases the honest answer will still favour the acquisition, but in some cases, particularly where the capability is really a handful of technical staff and a track record of solving formulation or process problems, the organic route, properly resourced and properly claimed, is cheaper than most finance teams might assume.

The activities behind the M&A headlines are the same activities that already qualify for relief when a business does them itself. The tax system is, in effect, already subsidising a version of the capability build that companies are instead paying to acquire.

There is also a due diligence aspect. A target's unclaimed or under-claimed R&D activity is value sitting on the table, something a buyer can capture once the business is theirs. Equally, aggressive historic claiming can be a liability a buyer inherits along with the balance sheet, particularly given HMRC's recent scrutiny. Either way, the R&D tax position deserves the same attention in due diligence as any other tax exposure, not a footnote to be picked up after completion.

Where the qualifying activity is hiding

For finance leaders without deal activity on the table, the more immediate question is simpler: what is your own business already doing that qualifies. The gap isn't activity; it's more about recognition. Most F&B manufacturers are already carrying out qualifying projects; what is often missing is someone flagging them as R&D:

• reformulating to cut sugar, salt, or alcohol content while holding taste, texture, and shelf stability constant, a genuine technical trade-off, not a simple substitution
• extending shelf life through new preservation methods, modified atmosphere packaging, or novel barrier technology, without leaning on the preservatives customers are trying to avoid
• reworking a production line to handle a new ingredient, format, or allergen requirement, often with real process and contamination-control challenges to solve
• developing new bottling, canning, or packaging processes to solve a specific technical problem, shelf life, seal integrity, material substitution, that off-the-shelf solutions can't fix
• responding to regulatory change with an innovative technical solution, reformulating around a banned or restricted ingredient, rather than simply relabelling or adjusting compliance paperwork.

Average recovered claim values in the sector remain modest compared with other sectors. HMRC data puts the average F&B manufacturing claim at around £126,000 against roughly £163,000 for manufacturing overall and a UK average across all sectors of around £162,000. That is partly a function of claim quality and evidencing, and partly a function of businesses under-claiming or not claiming at all.

The due diligence blind spot

There is a second angle worth raising directly with anyone running a live acquisition process, distinct from the premium-versus-cost question above: how the deal itself is structured and executed. R&D tax relief entitlement isn't always a line item in due diligence, yet it should be. A target's qualifying activity doesn't disappear on completion. Depending on how the deal is structured, the acquiring group or company may be able to claim relief on qualifying work going forward, or may uncover unclaimed historic entitlement that changes the numbers. 

Equally, acquirers need to understand how a deal affects a target's existing claims. Pre-notification requirements, changes to a company's status as a first-time or lapsed claimant, and the treatment of contracted expenditure can all shift the moment ownership changes. None of this is usually picked up unless someone is specifically looking for it, which is why it often gets missed.

What finance leaders should do next

The practical takeaway isn't complicated, and three questions are worth asking now, whether or not a deal is on the table.

First, does your own innovation activity, reformulation, process change, packaging development, currently feature in your tax planning at all. If the answer is no, that's worth revisiting before assuming the answer is obviously no.

Second, if you are assessing an acquisition partly for its R&D or technical capability, has anyone costed the alternative of building that capability organically, with relief factored in, rather than treating the acquisition price as the only number that matters.

Third, if you are already mid-process on a deal, has R&D tax entitlement, both the target's and your own post-completion position, been considered as part of due diligence, rather than left as a tax return afterthought.

None of this replaces the strategic logic behind good M&A. Scale, speed, and access to talent and IP will often justify the acquisition route on their own terms. A sector that should dominate this tax relief scheme by scale claims just 2.2% of it. Yet it pays real premiums in the M&A market for the very capability that relief is designed to support. That's a gap worth closing.