The F&B sector is still active despite ongoing issues in the economy.

That's the main take from the M&A analysis in our Q2 2022 food and beverage review. There are huge challenges across the sector, including recent widely-reported disputes between supermarkets and some suppliers about absorbing rising costs, but long-term trends are still clear. There's a noticeable shift towards wellness and plant-based products as the industry prepares for increased regulation on 'junk' foods, albeit with contradictions and activity in more traditional areas of the sector.

You'll find much more detail on these trends and key deals in this review. And if you are engaging in an M&A transaction, there's also guidance on managing a DB pension scheme.

For each of the last four quarters, deal volumes have stubbornly hovered in the mid-thirties. However, there were just 26 deals in Q2 2022.

Though far from a disaster, this slowing stream of activity suggests slightly weakened confidence in a sector faced with several macro-economic challenges, such as rising input costs, squeezed consumers, and recession.

Announced M&A activity in food and beverage - quarterly


Disclosed deal value for the quarter stood at £1, 377 million.

Large deals include CapVest’s £426 million acquisition of South African chocolate manufacturer Natra.

Private equity accounted for 38.5% (10) of the announced deals this quarter, compared to 41.2% in Q1 (a 28% drop).

Key deals in F&B

In June, growth capital investor BGF announced an investment in Dublin Meat Company, owner of the Fit Foods range of healthy ready meals. In a simultaneous transaction, Dublin Meat Company acquired Monaghan food processing company Swift Fine Foods, which manufactures Fit Foods.

Also in June, Endless LLP bought KTC, which supplies over 250 million litres of edible oil a year to manufacturers, retailers, and wholesalers globally. The investment adds to the PE firm’s existing UK food portfolio, which includes Hovis, Bright Blue Foods, and Yorkshire Premier Meat.

Mind, body, strategy - a shift towards wellness


The wellbeing trend has driven Q2 deals in healthy snacks and functional foods.

Large International food companies are strategically buying into this area to hedge against changing consumer tastes and increasing junk food regulation.

Have you had your protein?

In April, Weetabix acquired Lacka Foods LTD, owner of ready-to-drink protein shake brand UFit. The deal will enable Lacka to accelerate growth in the rapidly expanding category.

Unilever’s hirsute pursuit

In May, Unilever announced a £790 million agreement to acquire a majority stake in Nutrafol, a provider of edible supplements for hair wellness. It currently holds a minority stake (13.2%) in Nutrafol through Unilever Ventures.

In January, Unilever said it aimed to push into health, beauty and hygiene products at the expense of slower-growing food brands.

Plant-based bedding in

A voracious appetite for all things plant-based seems to be abating. The category accounted for 8% of all deals in Q2 2022, compared to 11% in Q1 2022 and 24% in Q4 2021.

We see this as a sign that this relatively new category is bedding in:

The next six months in F&B - grow or go?

As recession looms and inflation shows no sign of cooling, many F&B owners face a tough choice: try and grow in difficult conditions or push on with an exit.

Others may not have the luxury of either option. Q2 saw 13 administrations and 38 members voluntary liquidations (MVLs). We expect more of both in the face of rising cost pressures.

It doesn't help that supermarkets are reportedly leaning on suppliers to absorb price increases. Heinz last month paused supplies to Tesco after the retailer said it was not prepared to pass on unjustifiable price increases to its customers. The two sides have since reached an agreement.

This situation is not good news for smaller suppliers – of which there are many in the highly fragmented F&B industry – that don’t have the same bargaining power.

Q2 saw two businesses acquired from administrators. Wine brand HUN, which targets Millennial drinkers, was saved by its supplier Origin Wine. Meanwhile, Morrisons acquired the McColl’s convenience store chain in a pre-pack administration.

Creating new legacies

Across the globe, larger food and beverage companies are reorganising their portfolios to focus on high-growth areas.

Last month, for example, Kellogg's announced that it plans to split into three independent public companies: snacking, cereal, and plant-based, reflecting the different growth rates of each sector.

Unlike the 2008 recession, this time around there's plenty of cash to fuel M&A. The challenge for F&B businesses looking to sell is proving that they have the growth potential to offset reduced household budgets.

For more insight and guidance, get in touch with

Consumer pressures, cost inflation, and supply-chain challenges in the food and beverage industry are well-rehearsed 'clear and present' issues, but as my colleague Trefor Griffith explains, M&A deal activity has remained robust across the F&B sector.

Nonetheless, there's also been evidence of financial tightening in some areas – particularly among businesses which accumulates substantial debt to survive COVID-19.

Where a deal – whether M&A or financing-related – is being contemplated and a DB pension scheme is involved, there are often compelling arguments for early engagement with the scheme trustee: to avoid unexpected surprises and follow developing market practice coming from new provisions in the Pension Schemes Act 2021.

What did the Pension Schemes Act 2021 change?

There've been a number of 'moral hazard' powers in place since the Pensions Act 2004.  Essentially, these were designed to ensure that DB schemes weren't adversely affected by corporate actions which might have materially damaged the employer covenant supporting a scheme.

In 2021, new legislation 'turbocharged' these powers – for example, introducing two additional specific tests, and an enhanced notification regime in relation to certain events (although the secondary legislation to give effect to elements of this is still awaited).

Put simply, transactions which may have the effect of weakening a sponsor’s covenant – whether on a going-concern basis or upon a notional insolvency – can lead to the trustees, and the Pensions Regulator, demanding 'mitigation' to compensate for the weakening.

Once the new notification regime is fully in place, sponsors will be obliged to give early notice of certain corporate actions to both scheme trustees and the Pensions Regulator.

What does this mean for pension scheme sponsors?

For sponsors facing financing challenges or contemplating M&A activity, our message is clear: 'don’t forget the pension scheme!' For example, putting in place secured debt which materially weakens a scheme’s recovery on any insolvency may be a big 'no, no' unless the position, including any required mitigation, has been agreed with the scheme trustees.

Leveraging up to make an acquisition; selling a business which forms part of the sponsor covenant net; or paying substantial dividends where a scheme is underfunded, can all be problematic.

Our experience is that approaching trustees early, with high-quality information around a transaction and its implications and sensible proposals to address any scheme impacts arising, will usually generate a professional and constructive response.

Conversely, approaching trustees at the last minute – or, worse, after a deal is done – may well elicit a negative response leading to unexpected consequences.

If there's one message we find time and time again, it's that 'time spent in reconnaissance is seldom wasted'.

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