According to the latest research conducted by business and financial advisory firm Grant Thornton UK LLP, after a strong first quarter deal activity in the food and beverage sector has declined this quarter, due to market uncertainty in the lead up to the EU referendum.
The total number of deals completed in Q2 decreased to 44, a 20% drop compared to the previous quarter. The uneven concentration of deals throughout the period demonstrates the uncertainty created ahead of the referendum, with 20 deals concluded in April, 14 in May and only 10 in June.
Although the year-to-date total of 99 deals represents a circa 9% decrease compared to the first half of 2015, the sector has performed favourably compared to the slowdown seen in overall UK market activity.
The total disclosed deal value for this quarter was £2.88 billion. This was heavily influenced by the £2 billion sale of SAB Miller's non-core European assets to Asahi Group; one of 10 deals completed in the brewery and alcohol sector this quarter.
Cross-border M&A and private equity
Q2 upheld the ongoing decline in cross-border M&A activity: 37% of deals in Q2 2016 were cross-border, compared to 46% in 2015 and 49% in 2014 overall. The UK F&B market has long attracted overseas buyers and in recent years there have been a number of deals involving iconic Western brands, particularly those focused on healthy eating products, and Asian investors. Although the current state of uncertainty may be deterring investment, this may reverse when greater clarity on the UK's terms of future trade with the EU is provided.
Interest from private equity (PE) investors continued in Q2 with nine deals completed, compared to seven in Q1. A number of PE deals this quarter came from the snack and convenience foods market, with Tyrrells' (backed by Investcorp) acquisition of Aroma Snacks and Sun Capital's acquisition of Fresh-Pak Chilled Foods.
Trefor Griffith, Head of Food and Beverage at Grant Thornton UK LLP commented:
“Overall, despite a slight slowdown in M&A activity this quarter due to the uncertainty created by the EU referendum, the sector has displayed considerable resilience. With only a 9% decrease in deal activity so far this year, compared to a much greater decline in UK M&A across all sectors, it is evident that the F&B sector remains a pretty safe haven in which to invest. A number of key underlying M&A drivers that have kept deal activity buoyant this quarter are ongoing: from the pool of private equity money and the attractiveness of the food and beverage and broader consumer sectors to investors, through to changing consumer trends further driving consolidation.
"If, as some forecasters predict, the UK does enter into a recession, we expect the sector to remain fairly resilient. Food and drink companies largely weathered the storm of the last downturn, and have a history of being able to innovate to embrace new trends, for example by offering cheaper restaurant venues, or taking advantage of the eating at home trend. This allowed both consolidators and new entrants in the market to take advantage of new M&A opportunities.
"Whilst the result of the EU vote has triggered further uncertainty which is likely to further subdue M&A levels going forward, we expect the underlying drivers of M&A activity in the F&B sector to support activity in the second half of the year."