UK finance company Oghma Partners has reported that T1 2024 saw grocery and confectionary categories with one of the highest levels of mergers and acquisitions by volume.
Oghma saw that approximately 75% of merger and acquisition (M&A) deals had an estimated value of £10 million or less as there was a “continued absence of middle to higher market deals”.
Only around 5% of transactions were above £50 million, said Oghma, and there were no deals above the £100 million mark for the tertial.
The finance company stated that UK corporate buyers had driven most of the tertial’s M&A activity, accounting for 79.1% of deal volume (34 deals) compared to 60.3% for T1 2023. It said that this was met with a reduction in the number of deals completed by financial and overseas buyers, with them accounting for 9.3% and 11.6%, respectively.
The distribution sector saw one of its most active tertials, with a particular focus on distributors supplying to foodservice. Similar to previous periods, the grocery/confectionary sectors also accounted for a large proportion of deal activity, holding 20.9% of activity by volume.
Oghma reported that the chilled food category accounted for 14% of deal activity by volume, with the dairy category close behind at 11.6%.
Deal volume expected to remain “robust”
Mark Lynch, partner at Oghma Partners, said: “Looking forward, we expect deal volume to remain robust and deal values to pick up gradually as market conditions improve. The start of 2024 has seen the UK economy exit the recession it entered in the second half of 2023, and both consumer and business confidence have risen substantially since last year.
“In March, the inflation rate fell to its lowest level since September 2021, food price inflation has matched this pattern, marking its 12th consecutive month of easing rates. The BoE has kept interest rates steady at 5.25% since September 2023, with anticipated rate cuts in the latter half of 2024. The combination of these factors creates a positive outlook for M&A activity in the UK food and beverages sector, however, it might take time for deal values to pick up again to their pre-pandemic levels.
“In addition to this, we anticipate divestments to be a large source of M&A activity, as companies look to refine their portfolios and carve out under-performing or non-core assets. Private equity deals are expected to pick up when financial conditions ease. There is currently a lot of pent-up demand from financial buyers, with dry powder at record-high levels of $2.59 trillion globally. On the other hand, acquisitions made by overseas buyers may take a lot longer to return as global conflicts, supply chain issues and worldwide elections taking place this year will continue to create geopolitical and economic uncertainty.”
