UK Food and Beverage Sector M&A deal value drops by 85%

The UK Food and Beverage Sector has had a good few years fuelled by challenge and change. From Brexit to Covid, during which one cannot forget the difficulty involving the Suez Canal, the cost inflation crisis, impact of labour shortages, increased utilities and that is all before we consider the ongoing affects of the War on Ukraine.

This has and continues to directly impact the Food and Beverage M&A market activity which has seen some interesting changes when comparing to previous years.

According to a report from corporate finance house, Oghma Partners, which shows that January – April 2022 saw a 85% dip in the volume and value of deals compared to the prior year period. Over two thirds of deals had an estimated value of £10.0m or less and there was a sharp reduction in deals in the range of between £10-100m.

The report highlights some intersting points:

• The world has been awash with liquidity as National Bank balance sheets have expanded post the financial crisis and then covid; combined with low interest rates the environment in which to borrow money has been very favourable.
• Looking into the second half of 2022 reluctant central banks may have to increasingly turn the tap off as the struggle with inflation. This action could lead to a great challenge financing deals or a higher cost to finance deals – either way it adds another challenge to the M&A outlook.
• Despite the challenges outlined above, whilst the sector could see consumers trading down or changing consumption habits from eating out to cooking from home for example, the consumption of food and to a lesser extent beverages is not a discretionary event. As a result historically M&A has continued despite challenging environments whereas in other sectors it can come to an abrupt halt. Referencing the 2008-10 period

Further highlights include:
• Given the long transaction lead times – the impact of food inflationary pressures on deal activity is yet to be seen in M&A activity– current processes are likely to be subject to greater scrutiny of the ability of sellers’ businesses to pass on cost increases
• Overseas buyers accounted for 25.0% of deal transactions, down from around one third for 2021
• Financial buyers held steady backing around one fifth of transactions with the shortfall made up by an increase in UK based corporate buyers to just over 50.0% of transactions
• There was a higher than usual level of activity in the beverage sector with several niche beverage producers changing hands in the period such as Bolney Wines, 40Kola, and Broadway Wine Company

It is fair to say that turbulent times continue to lie ahead and it will be interesting to see how things move and change within the space in the coming months.