New research from business and financial adviser Grant Thornton UK LLP has found that, despite a challenging year, food and beverage M&A activity rebounded in the last quarter of 2022.
The firm’s latest Food and Beverage Insights report found that there were 33 deals recorded in the sector in Q4 2022. While this is an increase compared to the previous quarter’s total of 19, it brought the total number of deals in the sector in 2022 to 116 – a 30% drop compared to 2021.
Trefor Griffith, head of Food and Beverage, Grant Thornton UK LLP, said: “The food and beverage sector entered 2022 on the back foot as organisations were still tackling the increased labour and input costs caused by Brexit and the pandemic. The conflict in Ukraine then exacerbated this further by dramatically raising the cost of energy, fuel and food. It’s testimony to the sector’s underlying appeal that the drop in M&A activity this year wasn’t steeper. The uptick in deal volumes in the last quarter of the year signals the green shoots of recovery and the vital nature of food and drink makes me confident that we will see activity increase throughout 2023.”
The final quarter of the year saw a significant increase in total disclosed deal value, reaching £1.1 billion, compared to £186.4 million in Q3 2022. This was driven by the presence of two large transactions in Q4 2022: Saria SE & Co’s £625.6 million acquisition of Devro and Grupo Bimbo’s £300 million acquisition of St Pierre.
Private equity (PE) appetite in the sector remained relatively muted in the last quarter of the year, with only six deals recorded. While this is a significant increase compared to Q3 2022 (3), it remains below Q1 (16) and Q2 (13) levels. PE activity was relatively low throughout the whole year with just 38 deals, down -45% compared to the previous year and -42% compared to 2020.
Health and nutrition has been an in-demand category of food and beverage deal activity over the past few years and its appeal showed no sign of waning in Q4, with seven deals recorded. The most active sector in the last quarter of the year was functional food, followed by plant-based brands, then pet food.
Reasons
Trefor Griffith added: “There are many reasons for the food and beverage sector to be optimistic about the outlook for the rest of 2023. Positive Christmas trading updates from UK grocers and hospitality firms offer a glimmer of hope that consumer confidence is returning, while global supply chain disruption caused by the pandemic is expected to settle during the year.
“There also remains a strong underlying appetite among business owners to sell. Buyers need to take advantage of this and focus on increasing diligence around underlying earnings. It’s important that they determine how macroeconomic volatility has impacted the bottom line – for example, whether they have been able to pass rising input costs to customers.
“In early 2021, there was a flurry of transactions as pandemic-frozen deals thawed. We expect to see a similar influx in food and beverage in 2023 when buyer confidence returns.”
