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Food and beverage deal activity rebuilds as economic volatility starts to ease

Food and beverage deal activity rebuilds as economic volatility starts to ease

New research from leading business and financial adviser Grant Thornton UK LLP finds that deal activity in the food and beverage sector is starting to rebuild, as some of the economic volatility of the last six months starts to ease.

The firm’s latest Food and Beverage Insights report finds that there were 37 transactions recorded in the first quarter of 2023. This is a 12% increase on the last quarter of 2022 and the same number that was seen in Q1 last year.

Private equity deals accounted for almost half (49%) of all deal volumes this quarter. This marks a 200% increase on the previous quarter and is the highest number of PE deals recorded in the sector since Q1 2021.

However, the type of deals that involved PE investment demonstrates that, while it's a sector of interest, they continue to approach it cautiously. Over half (55%) of PE-transactions were minority investments by consortiums, while the larger PE houses stuck to investing in bolt-ons for their existing portfolio companies.

While deal activity increased this quarter, total disclosed deal value dropped slightly. Just three deals accounted for 90% of Q1’s total reported deal value, which was down to £1.09 billion – a 3% drop compared to Q4 2022.

Plant-based food remained the sector of choice this quarter, accounting for 14% of all deals. However, investment slowed in the pet food sector, which had seen a flurry of investment during the pandemic as many took the opportunity of being at home to get new pets. This quarter, the category dropped out of the top four most active sectors for the first time since Q2 2022.

The first quarter of the year 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.

Nicola Sartori, Head of Food and Beverage, Grant Thornton UK LLP, said:

“The increase in the number of deals in the first quarter of this year shows that the food and beverage sector is starting to rebuild some momentum in the deals market, as the economic volatility of the past six months or so starts to reduce, and the backlog of deals starts to shift.

“But inflation remains high and both buyers and sellers who have spent the last year untangling the COVID-19 effect from underlying earnings, must now do the same for inflation. As always, the challenge for M&A will be reaching a consensus on a fair multiple.

“Though inflation is slowly starting to fall, the cost-of-living crisis continues to bite, and shoppers are looking for value for money. Consolidation in the highly fragmented UK food and beverage market would enable suppliers to drive efficiencies and win market share by passing those savings onto the end consumer.

“We know 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.”

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