M&A activity is picking up, but there are still concerns around rising administrations due to ongoing cost pressures. In this review, our experts explain the trends in key deal values and deal volumes as well as what the sector should look out for in the coming months.

You'll also find out why reformulating products to comply with high fat, salt, and sugar regulations may increase their eligibility for a VAT zero-rating.


Green shoots of recovery continued to sprout in the first three months of the year as deal volumes rose. There were 37 transactions, up 12% on 2022’s final quarter, and the same as Q1 last year. Almost half of all deal volume was accounted for by private equity.

Announced M&A activity in food and beverage – quarterly

Announced M&A activity in food and beverage

Three deals accounted for 90% of Q1 reported deal value, which stood at £1,093 million (3% down on Q4).

Private equity plays it safe

Announced PE activity in food and beverage – quarterly

Announced PE activity in food and beverage – quarterly

Eighteen private equity (PE) deals accounted for almost half (49%) of Q1’s transactions. This marks a 200% increase on the previous quarter and the highest volume of PE-deals since Q1 2021.

However, deal type shows that PE continues to approach the sector cautiously. Over half (55%) of PE-transactions were minority investments by consortiums. Meanwhile, large PE houses stuck to investing in bolt-ons for their existing portfolio companies.

Efficiencies of scale – Q1 bolt-on deals

In February, Apax-backed Europe Snacks, a European producer of savoury snacks for third-party brands, acquired Burts Snacks to accelerate its growth in Europe’s largest snacking market.

In March, UK PE-firm Endless bought poultry processor Smithfield Murray to add to its existing protein business, Yorkshire Premier Meats.

In January, Mobeus-backed Northern Bloc Ice Cream acquired Criterion Ices and Marine Ices.

In March, Waterland-backed dessert company Maison Boncolac acquired Proper Cornish.

Cost pressures lead to sharp rise in administrations

Amid continuing rising input costs, food producers have had to pass increased costs to customers, albeit with mixed success and normally some sort of time lag which has negatively impacted profits and cashflow. Those companies with weaker balance sheets and less cash or debt facilities to call on are more challenged as a result.

This quarter saw 19 administrations, a 90% increase on the previous quarter. It also saw two others rescued from administration: Curious Brewery acquired the Wild Beer Co and Dawnfresh Farming was acquired by Mowi Scotland.

Overseas interest creeps back

Domestic (UK and Eire) deals accounted for 54% of Q1 volumes. This is significantly lower than in previous quarters, which may indicate a slow return of interest in cross-border deals. There was an uptick in interest from overseas buyers (32% of deals compared to 21% in Q4 2022), indicating increased interest in UK and Irish assets.

Sector spotlight

Top 4 sub-sectors

Top 4 sub-sectors

Innovation and insects drive deals

Plant-based and functional food remained the top deal sub-sectors as ESG-minded investors backed sustainable solutions.

In January, insect-farming technology group Entocycle secured £4.4 million Series A investment from a consortium led by Climentum Capital. Entocycle’s technology helps farmers grow fly larvae to convert into protein-rich animal feed.

Also in January, Algama, which uses algae to create vegan salmon and vegan tuna, raised £11.6 million from a consortium of investors, including Blue Horizon Management.

In February, Rebellyous Foods, which makes no-chicken chicken, secured £7.8 million in funding from a consortium-led by Clear Current Capital.

Investment slows on pet food

The trend for lockdown dogs and cats triggered a flurry of investment in the pet food sector. However, in Q1, the category dropped out of the top four listing for the first time since Q2 2022. This could be due to more visibility on home-working patterns, which, in turn, influence the market’s potential. Investors may also be shying away from premium brands amid the cost of living squeeze on the end consumer.

Five trends to watch in 2023

Capital gains tax worries will prompt owners to sell

Not for the first time in recent years, there are fears that capital gains tax (CGT) rates will be increased, especially with a general election due by January 2025. As a result, we may see a replay of the deals flurry ahead of a feared CGT hike, similar to what happened when changes were anticipated before the March 2021 Budget – the anticipated changes didn't actually happen.

A stabilising economy will drive activity

Forecasts from The Office for Budget Responsibility (OBR) show the UK will narrowly avoid recession and that the CPI will fall to 2.9% by the end of 2023 (from a peak of 11.1% in Q4). This good news for the consumer-facing sector should alleviate investor worries.

Falling inflation may skew earnings

Both buyers and sellers have spent the last year untangling the COVID-19 effect from underlying earnings; now they must do the same for inflation. Suppliers with mid-term contracts that pass rising costs to supermarkets or food service companies may enjoy a temporary profits bump as inflation falls. As always, the challenge for M&A will be reaching a consensus on a fair multiple.

Price pressure will encourage consolidation

Though inflation is stabilising, the cost-of-living crisis continues to bite, and shoppers are seeking value. Consolidation in the highly fragmented UK F&B market will enable suppliers to drive efficiencies and win market share by passing those savings onto the end consumer.

Appetite for deals will grow throughout the year

Our conversations with clients show that business owners are keen to sell, but are reluctant to move until they can show a sustainable improvement in profitability and buyer interest picks up. This situation should resolve as the economy stabilises throughout the year and the market reacts to the encouraging signs of this quarter's positive deals data.

For more insight and guidance, get in touch with .

The government's efforts to tackle the obesity crisis include regulations to reduce the amount of high fat, salt, and sugar (HFSS) foods easily available to consumers. The regulations apply to a wide range of food and drink products sold in the UK and include restrictions on promotions and placement in retail stores and their online equivalents.

While, in most cases applying the regulations is delegated to retailers, manufacturers are being forced to reformulate their products by reducing the amount of fat, salt, and sugar in their products, if they want to avoid the restrictions. This has led to increased research and development costs for manufacturers as they work to create new formulations that fall out of the scope.

In addition, the new HFSS regulations are already having an impact on the VAT liability of some food products. As a general rule, food for human consumption is zero-rated, with numerous exemptions, which are subject to the standard rate of VAT at 20%. Importantly, VAT regulations aren't necessarily based on the health or nutritional benefits of the products.

One of the most notorious exemptions from the general rule for zero-rating concerns potato-based snacks, which are most often subject to VAT at 20%, and that's where we're seeing a notable interaction between HFSS and VAT.

For example, if a potato-based product is reformulated to reduce its fat, salt, or sugar content, this may require further changes to its content to make it palatable or cost efficient, or ensure that it's keeping up with consumer trends. If reformulating a product means that its potato content is reduced or removed altogether this may increase its chances of achieving zero-rating for VAT purposes – a desirable outcome for all food business.

To wrap it up, the new HFSS regulations are impacting the food production and marketing industry, which can potentially lead to VAT implications. This is why it is crucial for food manufacturers to be aware of the regulations and keep VAT in mind when they're developing new products. The right choice of ingredients, manufacturing processes and marketing can lead to great VAT results, as well as avoiding the HFSS restrictions.

For more insight and guidance, get in touch with Daniel Rice .

Get the latest insights, events and guidance about food and beverage straight to your inbox.