Are you ready for 2022? Taking time to review what happened in the final quarter of 2021 can help you understand what to look out for in the next few months. 

The food and beverage industry is still under pressure, but M&A activity increased in Q4, and lenders remain interested in the sector. F&B is preparing for the challenges of 2022: from changing consumer demands to ESG expectations and national minimum wage rules.

In the winter edition of our F&B insights, we share the wisdom and practical guidance you need to get 2022 off to a strong start.

It's clear now that Q1 deal volume in the food and beverage (F&B) sector was artificially bolstered by 2020 catch-up deals. The good news is that we're gaining more clarity on the headwinds the sector faces. In the meantime, F&B is not short of mega-deals, demonstrating long-term confidence in the sector from those with firepower. This is apparent in both deal volume and deal value.

Deal volume

Deal activity is on an upward trend, with 37 deals announced in Q4, compared to 32 in Q3 and 33 in Q2. However, these figures are subdued compared to equivalent pre-pandemic quarters.

There were 165 deals in 2021 as a whole. Again, this was an uptick on 2020's 160 deals but failed to meet pre-pandemic annual deal volume averages of 200+.

I suspect the drop-off in trade is a pause, not a halt. Investors are waiting for clarity on the sector's many uncertainties, such as shaping post-pandemic consumer spending and supply chain difficulties.


Graph 1: announced M&A activity in food and beverage - quarterly


Graph 2: announced M&A activity in food and beverage - annually

Deal value

Announced Q4 deal value totalled £396.5 million, compared to £1.4 billion in Q3  (which included the £10.3 billion acquisition of Morrisons).

The total value of disclosed deals for 2021 was £23.2 billion, inflated by several mega-deals (over £1 billion). This compares to £12.6 billion total deal value in 2020.

2021's mega-deals

  • CVC's acquisition of Ekaterra BV (£3.8 billion)
  • PAI Partners acquisition of Pepsico's Tropicana and Naked brands (£2.4 billion)
  • Bain Capital's acquisition of Valeo Foods (£1.5 billion)
  • Clayton, Dubilier & Rice's acquisition of WM Morrison (£10.3 billion)

Private Equity (PE) activity


Graph 3: PE activity as a percentage of all deals


Graph 4: Announced PE activity in food and beverage - annually

Q4 saw a slight dip in private equity (PE) activity compared to previous quarters. However, PE accounted for 42% of all deals in 2021 as a whole, its strongest share (vs trade) of deals in a decade.

This number is a leap from pre-COVID-19 when PE accounted for 25% of deals. This can partly be explained by a slackening in interest from trade buyers who are preoccupied with steering their businesses through challenging times. Another driver is PE's unprecedented strong cash position and access to cheap debt.

Cross border activity

The 2021 ratio of cross border activity (UK companies buying abroad and vice-versa) vs domestic deals remained consistent with previous years, which have hovered at a c.56%:44% international vs domestic split.

However, the origin of international buyers has altered over the last four years, with less post-Brexit interest from Europe and an increased appetite from North American buyers.


Graph 5: Location of buyers acquiring in the UK 2018-21


There were three administrations in Q4. This low number remains a pleasant surprise given the pressures that the pandemic has placed on consumer spending. 

Interestingly, there were 36 voluntary liquidations in Q4, including several suppliers to restaurants and takeaway food outlets. Investors will keep a close eye on how the end of coronavirus measures and price inflation will impact spending in these areas.

Sector spotlight

Q4: plants vs meat

The momentum of deals in the plant-based space continued into Q4 2021, representing 24% of the 37 deals. This was ironically followed by deals involving meat companies, which represented 19% of all activity.

Notable Q4 deals in the plant space include:

  • Pfeifer & Langen's investment in VBites Foods – the owners of Intersnack Group (Hula Hoops, Butterkist) bought a 25% stake in the plant-based group owned by Heather Mills. It plans to accelerate VBites' range of cheese and fish alternatives
  • The EVERY Company's Series C funding round led by McWin and Rage Capital – US biotech firm The EVERY Company specialises in alternative proteins, including ClearEgg – an animal-free soluble egg white replacement.

2021: tipples vs tofu


The trend for plant-based meat alternatives continues to grow in line with increasing consumer interest in health and the environment. A 2021 deal that typifies interest in the sector is Unovis Asset Management's Series A funding of Wicked Kitchen, the UK market leader in plant-based meals. Premium brands are viewed as a growth segment. Notable 2021 deals include Sunray Investments' acquisition of Stock Spirits, which caters to the Eastern European market.

The trend for plant-based meat alternatives continues to grow in line with increasing consumer interest in health and the environment. A 2021 deal that typifies interest in the sector is Unovis Asset Management's Series A funding of Wicked Kitchen, the UK market leader in plant-based meals.

Opportunities in 2022

We expect to see the following themes shape deal activity in 2022:

Post-pandemic consumer habits

Establishing the underlying earnings of some F&B businesses over the last two years has been something of a guessing game. Will a strong D2C model continue to thrive once consumers are back in the workplace? Conversely, will out of home eating suffer compared to pre-pandemic times if people commute just three days a week? As we enter 'year three', a consistent new normal is yet to emerge. This will be solved if COVID-19 enters a stable endemic phase, a direction in which current press reports suggest we are heading. Until then, it's the job of thorough due diligence to establish how a business will flex under various models.

All change for consumer spending

As inflation creeps up and potentially outstrips wage growth, we may see a shake-up in consumer F&B spending. Following the 2008 crash, for example, we saw people spending less on eating out but trading up for more luxury treats at home. Others turned to value lines. A shake-up of consumer F&B spending may augment the growth prospects of certain companies. Companies and private equity investors are working hard to identify the future winners and invest in or acquire them ahead of the growth curve.

Rising costs

Staff shortages, rising energy and raw material costs will put pressure on smaller businesses. The workforce issue may be temporary as the UK government works through post-Brexit personnel shortages by issuing visas to, for example, farmworkers and HGV drivers. In the meantime, buyers will be looking for businesses with synergies that can be used to offset external cost pressures.

Mega deals

2021 saw a glut of mega-deals. We expect this to continue into 2022 as larger firms focus on their core strengths – at the time of writing, Unilever has just offered £50 billion for GlaxoSmithKline's consumer products division. Although it was rebuffed, it shows there's still enough confidence in the sector from large global brands.

This increased deal activity is not the only sign of strong prospects for food and beverage businesses in 2022. Alternative lending options and new capital are also opening up opportunities for the best-performing companies.

The food and beverage sector (F&B) has been faced with significant challenges, including the ongoing impact of labour shortages and related wage inflation. The shortage of semi-skilled and unskilled labour in the UK was only made worse following the reopening of hospitality in June 2021. A recent Grant Thornton survey of 73 businesses found the highest proportion of vacancies in food processing businesses averaging 43%. The latest Omicron variant is exacerbating this situation with acute and unpredictable periods of shortages. 

Despite these headwinds, the sector has shown resilience, and in line with the M&A market, the debt and capital markets remain buoyant, and the availability of credit is strong.

Increasingly, businesses are working with debt advisors to explore alternative lending options either alongside or instead of the traditional high street banks in order to meet their borrowing and liquidity needs. New capital is available from a range of providers, including non-bank lending funds providing unitranche loans, international and challenger banks, insurers and asset managers. The sector also lends itself to asset-based finance, where assets and receivables can be pledged as security to increase credit availability and reduce pricing.

Liquidity support provided through government-backed lending schemes is coming to an end, and businesses are considering how best to structure their borrowing arrangements to meet their strategic goals. The F&B sector is well supported by lenders, given underlying consumer demand and relative visibility over cashflows (although this visibility varies by sub-sector). It's no surprise that many sub-sectors within F&B have been the most popular among lenders in 2021, which is set to continue this year.

Ensuring financial readiness for 2022

To prepare your financial strategy for 2022, you should engage early in the process of refinancing and consider the wide range of borrowing options and traditional and alternate lenders in order to drive the best possible terms:

1 Make decisions on debt levels as part of an integrated strategy to ensure ample liquidity to carry out your plans.

2 If refinancing, start the process early, at least 18 months prior to the expiry of your existing facility.

3 Approach a wide range of lenders – this can be time-consuming upfront but leads to the best possible terms, including pricing.

4 As lenders increasingly prioritise 'green' or 'sustainability-linked' lending to align with their own strategic goals, investing in ESG can bring discounts in return for out-performance on sustainability metrics and application of proceeds.

The strongest credits have taken advantage of borrower-friendly conditions in 2021, and this opportunity remains open for many businesses in 2022, despite the continued uncertainties surrounding COVID-19 and the winding down of government support. This year lenders will increasingly ask borrowers to demonstrate and prove their ESG credentials, and borrowers will demand this from their lenders as they look more closely at ESG factors for all their stakeholders.

For more information, get in touch with Christopher McLean or Jon Bramwell.

Even in this promising context, the sector can't afford to be complacent, as rising consumer demand for alternative foods is poised to accelerate. What do people want to eat now?

The UK food and drink (F&B) industry enjoys an annual turnover of more than £105 billion. It accounts for 20% of total UK manufacturing revenue and is the single biggest manufacturing sector in the country, according to 2021 stats from the Food and Drink Federation. So when consumer habits change in this industry, businesses must be able to adapt quickly – or risk being left behind.

Consumer demand for ‘green’ food and drink alternatives has been slowly rising over the past decade. And the availability of plant-based and dairy-free F&B products in supermarkets, restaurants and in the workplace has slowly become commonplace.

In fact, the proportion of UK consumers purchasing plant-based alternative food and drinks has nearly doubled in the past decade, according to a new (and possibly first) analysis of plant-based alternative foods (PBAF) consumption trends in the UK. The study followed the dietary details of 15,655 people and found the proportion who reported drinking plant-based milk and eating vegan sausages and vegetarian burgers, for example, rose from 6.7% to 13.1% between 2008-2011 and 2017-2019.

Businesses are beginning to capitalise on these trends, as shown in the interactive timeline below:


Plant-based alternatives reached a much wider political consciousness in 2010 following a UN Environment Programme (UNEP) report which foreshadowed that a global shift towards a vegan diet was vital "to save the world from hunger, fuel, poverty and the worst impacts of climate change” (Guardian, 2010).

Since then, the meat-free sector has seen a series of firsts: from the launch of Europe’s first vegan supermarket chain to insect-based protein powders to alleviate childhood malnutrition, from lab-grown burgers and synthetic meatballs to high street supermarkets launching their own meat-free ranges.

The rise of low-tax low-alcohol beverages led to innovation in the drinks market. And dairy-alternative beverages became highly desirable, culminating in last May's IPO by Swedish oat milk producer Oatly, which went public with an initial valuation of $10 billion. Prior to that, Beyond Meat, a producer of plant-based meat substitutes, went public in 2019 as the best-performing US IPO since 2000.

What's driving green F&B now and in the future?

The pandemic has acted as a catalyst for growth in the green F&B market. Widespread fears of a shortage of meat and dairy products ramped up sales following factory closures from COVID-19 outbreaks.

At the same time, consumers began to shift to plant-based alternatives in an effort to boost natural immunity. Bloomberg reported, for example, that the plant-based meat industry saw sales increase by 264% at the height of the pandemic; dairy alternatives also saw an increase in demand, with oat milk sales up 347% year-on-year in March 2020.

Looking forwards, we expect these trends to continue. Global macro-economic factors – from population growth to the net-zero agenda to continued plant-based innovation – will continue to drive growth in these markets over the long- term.

With increasingly environmentally conscious consumers and growing investor appetite in plant-based R&D comes significant growth opportunities for businesses – and also potential substantial return on investment for investors.

To continue the conversation, get in touch with  or .

It's not only consumers' environmental concerns that you need to address: employees are increasingly aware of their companies' economic impact , and this includes how their pensions are invested.

Food and beverage (F&B) suppliers increasingly focus on demonstrating their commitment to ESG: including use of recyclables and sustainable supply chains, but one area receiving less attention is pensions. Many firms across the market are reviewing their pension arrangements to ensure employees have access to investment funds which showcase commitment to environmental and sustainability strategy. To truly show that it's investing in ESG, the F&B sector needs to carefully consider the sustainability of it's pension schemes.

You cannot be left behind in addressing this. The profile of your ESG position is only going to get higher. Your customers will consider your ESG impact and base their buying decisions on this. You need to show that this is an important issue to you and demonstrate clearly that you're taking steps to optimise your ESG position in every aspect of your business.

How is ESG influencing pension funds?

If they don’t already, in years to come, your employees will have millions invested in your company pension scheme. You set the default investment fund for this scheme, and you pay contributions to it. Can you safely say to your customers and employees that this is invested in line with ESG principles?

Pension providers are introducing ESG funds at different rates. Some are leaving it to the natural change in investment markets. They are seeing their current default investment funds transition slowly as ESG issues have more impact on company performance and share prices. Others are offering funds with an active ESG strategy.

You cannot sit back and rely on a slow natural transition from pension providers to move towards an ESG-based investment strategy. Your customers need to be able to see that you are fully considerate of all aspects of ESG.

Investment managers in ESG-based funds are

  • excluding investments on ethical grounds,
  • actively seeking investments which make a positive impact on customers employees, local communities and the environment,
  • taking a far more active voting position on the policies of companies they are invested in

The drive for ESG investments in pension schemes is now emanating more from what your customers expect to see from you, rather than employees wanting to invest their own pensions money conscientiously.

What can you do to bring ESG into your pension plan?

You can review your pension provider’s ESG policies and change the default investment strategy for your pension scheme. You have control over your default investment fund and can change it to an ESG-based strategy. Not only will this give comfort to your employees that their money is being invested ethically, but it will also show your customers the depth of your own ESG concerns and position.

We have already helped clients to review their pension scheme’s ESG position. We have aligned default investment strategies to fit in with clients’ overall ESG strategies, clearly demonstrating a commitment to this to customers.

For more insight and guidance get in touch with Raj Kumar.

Finally, one thing you can do to reduce the risk of more serious problems arising from your people management is ensuring that you're always adhering to the rules on national minimum wage.

HMRC's ninefold increase in the number of NMW compliance officers – from 50 in 2015 to over 450 currently – sends a strong message of its continuing clampdown on NMW compliance, regardless of whether it is an intentional or unintentional breach.

The financial penalties, which include 200% of the total underpayment, and the reputational damage can be significant and are best avoided. High-profile F&B breaches include Pret A Manger, which was 'named and shamed' by HMRC last August for an underpayment involving a form of salary sacrifice. And restaurant chain Wagamama fell foul of NMW rules in 2018 over a request to front-of-house staff to provide their own black clothing alongside the company's branded top.

Here are five issues you need to look out for to stay compliant.

1 Incorrect worker type classification

Understanding which worker type your employees are for NMW purposes is essential. You will need it to calculate whether or not they have been paid NMW for all the hours they have worked in a pay reference period (PRP).

The four worker types for NMW purposes are salaried, time, output and unmeasured. Each has a different set of criteria to meet the worker type definition. Getting this classification wrong can lead to significant underpayments if a worker is deemed not to have been paid for all the hours worked in a PRP.

2 Annual rate rises and significant birthdays

Employers have a legal responsibility to ensure workers are paid the correct NMW rate for all the hours worked in a pay reference period. Each April, NMW rates increase and are broken down into five categories: 23 and over (formally 25+ pre-April 2021), 21-22-year-olds, 18-20-year-olds, under 18s and apprenticeship rate.

Employees should be paid the correct NMW rate according to their age at the start of the next PRP. For example, if an employee has a significant birthday in the middle of a monthly PRP, then the new NMW rate is only applicable at the start of the next PRP and not the date of the significant birthday.

3 Deductions from pay

Employers can legally make numerous types of deductions from pay. But you should always consider how it might affect NMW before doing so due to the risk of falling into non-compliance.

Most deductions reduce a worker's pay for NMW purposes (unless they are specifically exempt) and may therefore risk pay levels falling below the minimum wage. Deductions made by an employer and paid directly to a third party (for example, an employer deducting childcare vouchers and paying the amount directly to the nursery) and deductions under conduct and discipline do not reduce pay for NMW purposes and are exempt.

Care must also be taken if applying a salary sacrifice scheme to a worker, as this will also reduce a worker's pay for NMW purposes. It doesn't matter whether or not the deduction is for the benefit of the employee; pay for NMW purposes is still reduced.

4 Unpaid working time

It is vital that all time considered working time for NMW purposes is recorded and paid for at or above NMW rates. One of the most common NMW risks is employers not paying workers for all working time.

What constitutes working time is an employment law matter; however, here are some examples:

  • Travel and waiting time for the purpose of work (excluding commutes)
  • Training time
  • Team meetings
  • Untaken breaks
  • Work completed at home

5 Recordkeeping and enforcement

It is legally your responsibility as an employer to keep sufficient records to demonstrate all your employees are paid at least the national minimum wage for all the hours worked for a minimum of six years.

HMRC NMW investigations can be costly and add a significant administrative burden to a business. Penalties of 200% of the underpayment and being publicly 'named and shamed' are the significant risks of breaching NMW regulations.

With big changes in how people are working as a result of the pandemic, the risk of inadvertently underpaying staff is potentially raised at present. For example, F&B businesses should check that any additional procedures required due to COVID-19, which requires their workers to arrive earlier or stay later, is correctly accounted and paid for. Conducting an initial light-touch HMRC-style review can help you spot potential risks and provide assurance on NMW compliance.

To discuss these issues further, please get in touch with Phil Cavill.

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