According to the latest research from leading business and financial adviser Grant Thornton UK LLP, deal activity in the food and beverage sector has picked up in the second quarter of 2018.
Grant Thornton’s latest food and beverage insights report found that 50 deals took place in the food and beverage sector in Q2 2018; a 28% increase compared to the previous quarter which recorded 39 transactions.
There were just 13 publicly disclosed deal values in Q2, producing a total disclosed deal value of £1,049 million; a significant 47% increase on the previous quarter. Synonymous to Q1, there were no mega deals over £1 billion; however, there were a handful of deals at the £200 million level.
Private equity (PE) activity has gone from strength to strength this quarter. PE was involved in 30% of transactions in Q2, compared to 27.8% in Q1. Three of the largest reported deals in the quarter involved PE houses acquiring overseas food businesses, including CVC Capital Partners investing in two businesses in the quarter: Munchy Food Industries in Malaysia and GarudaFood in Indonesia, both active in the snacks, biscuits and confectionery sectors.
Although domestic deals continue to account for the majority of transactions (56%), Q2 saw a further increase in overseas investment in UK assets (44%). This represents a slight increase on overseas activity in Q1 (42%) but is still lower than levels seen in Q4 2017 (49%).
Once again, overseas buyers for UK/Irish assets in the quarter mostly originated from Europe and the USA. While Asian appetite for consumer businesses remains well publicised, in Q2, that did not translate into completed transactions.
Following on from previous quarters, the alcoholic drinks sector continues to be an important driver of M&A activity in the sector, with 10 transactions recorded in Q2. In addition, in line with the growing interest in the health and wellness agenda, M&A activity in human and animal nutrition continues to increase with 4 deals.
Trefor Griffith, head of food and beverage at Grant Thornton UK LLP, commented on the findings: “It is encouraging to see that the level of deal activity this quarter has increased back in line with the numbers recorded at the end of 2017and preceding quarters in recent years. Whilst the uncertainty surrounding Brexit remains, companies have to continue to move forward, including pursuing M&A strategies. It is also promising that we have seen interest from private equity investors increase this quarter, demonstrating that the resilient, defensive and fragmented nature of the food and beverage sector remains highly attractive to these investors.
“As the UK moves closer to operating outside of the European Union, UK businesses are looking further afield to other international markets to secure future relationships. The US market represents a significant opportunity for the UK, as a result of the change in trends and habits of both middle-America and millennials driving a wave of consolidation and divestment in the industry. With a trend for premiumisation continuing, private-label businesses are in a position to benefit and UK based businesses need to draw on their strengths and be confident in the power of the British brand.
“Whilst food and beverage businesses need to continue considering international relationships in order to remain competitive, they must also start to re-evaluate their sustainability strategies and look at reducing their food waste. It has never been more pertinent to the industry, and businesses must view this as an opportunity to innovate, drive efficiencies and streamline supply chains. As well as making commercial sense, consumers across the world are increasingly demanding products that are environmentally friendly. It will be interesting to see how the industry responds to this in the coming months and years.”