The rising cost-of-living has had a major effect on deal-making activity. There were only 20 deals announced in Q3 2022, the lowest volume since 2007, when we started collecting data.

Only six of Q3 2022's deals disclosed financial details, totalling £186.4 million - also the lowest we have seen since Q1 2015, when it reached a low of £129.1 million. Unsurprisingly, there were no mega deals (£1 billion +) in the period.

Announced M&A activity in good and beverage - quarterly


Deal spotlight – Premier returns to M&A

In July, Premier Foods Plc’s acquired meal kits brand The Spice Tailor for £72.5 million. The deal marks Premier’s first full acquisition since 2006. The high-end curry ingredients business speaks to the enduring post-lockdown trend of ‘convenient home cooking’ and fits well with its Sharwood’s and Lloyd Grossman brands.

Buyers go back to basics

In the deals that were announced in Q3, several were driven by strategic and operational reasoning, rather than the pursuit of new categories.

Private equity

Of the 18 deals announced/completed in the quarter, just three involved private equity. They occurred within the high-growth areas of pet care and health and wellness.

Traditum Private Equity invested £1.75 million into Sniffers Pet Care.

The UK-based CBD drink brand TRIP received £10.5 million funding from a consortium of private investors, including Maria Raga, the former CEO of Depop, and Christian Angermayer, founder of Apeiron Investment Group. The funding will support the brand's growth in the United States.

S-Venture acquired Lizza, a free-from and low-carb food brand, including pasta and bread, from Hamburg-based Peter Cremer.

International interest

UK buyers were proportionately more active than international acquirers in Q3 2022 (a reversal of Q2).

Broken down, overall activity in Q3 2022 was 68.2% domestic-to-domestic deals, 18.2% overseas Acquisitions of UK and Irish entities, and 13.6% UK & Irish companies acquiring overseas. This suggests that even though the pound is cheap against other currencies, this doesn't outweigh the perceived risk of investing in the volatile UK market at the moment.

Nearly-distressed deals

There was just one distressed deal this quarter (see deal spotlight). We expect this number to rise in coming quarters. We also anticipate more ‘nearly-distressed’ transactions in which the seller has been forced to weigh up exit options earlier than they would have liked.

Deal spotlight 

In August 2022, health food wholesaler The Health Store and its sister company Tree of Life went into administration, blaming inflation and the loss of a major customer. In September, Dorset-based Hunt’s Food Group rescued The Health Store. Hunt’s, which has been trading for 110 years, said that the “deal brings greater choice to our customers and complements our commitment to having the most competitive, comprehensive range available.”

A historically resilient sector

Announced M&A activity in food and beverage - annually


The reasons for current volatility – inflation, interest rates, energy prices – are well-documented. It's more useful to examine how the sector has typically recovered from financial shock. In the years following Lehman’s collapse at the end of 2008, for example, food and beverage deal volumes bounced back quickly and continued an upward trajectory, before plateauing at a healthy level between 2015-2020.

Although the 2008 credit crunch crisis impacted consumer confidence, the main reason for stalled deal activity was (as its name suggests) a lack of debt. This time around, the sticking point is more due to uncertainty, because of the volatility of both UK politics, wider geopolitics and, as a result, economics. This in turn is feeding through to a reduction in appetite to lend or invest in the sector, but there's a huge amount of money that can and will be deployed when the volatility reduces.

Perhaps, therefore, a more useful (and recent) parallel would be the sector’s slump in Q2 2020, which was also due to the uncertainty caused by the pandemic. As soon as vaccine development and a more general understanding of the virus reduced uncertainty, deal volumes began to recover. This upward trajectory would likely have continued had it not been for Russia’s invasion of Ukraine.

Investors feel jitters

Uncertainty around inflation is causing unprecedented nervousness in both public and private markets. This was demonstrated in a recent reaction to interim results from AIM-listed Tortilla Mexican Grill. Rising meat and energy prices marred an otherwise glittering update (sales rose 30% year on year and 19% on a like-for-like basis for the first half of the year). The announcement caused its stock to slump 27.4%. Though its warning of a three-percentage point reduction in gross margin for FY22 (approximately £1.8 million was unwelcome), some questioned the market’s jittery overreaction.

Winners and losers of the cut back economy

Our own recent on the report The Cut Back Economy shows that one-in-two UK shoppers are cutting back on food and groceries, more than any other retail and leisure subsector. Where exactly consumers will cut back depends on demographics and even then, can be unpredictable. Few would have thought that supermarket ‘dine-in’ deals would have been the hero category of the 2008 recession as consumers traded down from eating out. Fewer would have predicted the recent drop in vegetable sales - 49% of families with a household income of under £30,000 were buying less fresh veg due to growing concerns over household finances, according to YouGov data.

Riding the storm

There are many positives for food and beverage M&A in coming quarters, not least its historical resilience. Deals with strong fundamentals will still get done and we are likely to see consolidation in parts of the sector with overcapacity. All management teams need to ensure that they have a full understanding of costs of their businesses, efficiently manage working capital and fully benefit from R&D tax credits.

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