Finance company Oghma Partners has released its latest UK Food and Beverage Sector M&A Report, which shows the volume of deals was up 68.2% when compared to the same period in 2022. Deal value also increased by 49.1% to around £400 million.
Over 75% of deals in 2023 had an estimated value of £10 million or less as there was a significant absence of middle to higher market deals during the period, similar to the first term (T1) of 2023. Only 8.1% of transactions were estimated to be above the £50 million mark, falling well below the five-year historic average of 13.9%.
The chilled food sector was particularly active, comprising 21.6% of transactions compared with 2% to the same period in the prior year and 6.1% in T1.
Mark Lynch, partner at Oghma Partners, said: “The resilient and defensive characteristics of the food and beverage M&A sector can once again be seen with T2 deal volume at its highest level since 2019 despite the relentless market challenges.
“Whilst there has been a recovery in deal value, this has been from a very low base and the overall quantum value of transactions remains low. A challenging funding and trading environment with the added uncertainty of whether, or not, the UK will dip into recession provides the economic backdrop. These factors have manufactured a significantly less favourable environment for larger transactions with 75.7% of deals having an estimated enterprise value of less than £10 million.
“Once again, the increase in deal volume and low value deals can also be explained by a surge in distressed M&A activity with 27.0% of T2 deals being an acquisition out of administration, up 14.9% from T1. Business models have been challenged by the rise in the cost of debt as well as the cost of raw materials combined with a more value focused consumer.”
Significant deals made in 2023
Lynch said: “Some notable acquisitions out of administration within T2 include the acquisition of Meatless Farm by VFC Foods and the acquisition of Plant & Bean by Heather Mills (VBites). Both deals highlight the concentration that is now going on in the meat free industry encouraged by the shrinking of the category and challenged business models of some of the businesses.
“As usual, bolt on activity was relatively prevalent in the period. For example, Britvic acquired Jimmy’s iced coffee, Richardson Malting acquired Ragleth, and Espersen acquired Iceland Seafoods. These types of transactions can often provide ‘easy reach’ synergies which encourage the acquisition activity in the first place.
“Frequently these synergies will be at the back office and purchasing level, sometimes manufacturing and less prevalent and, arguably, harder to obtain, sales synergies.
“Our outlook for the remainder of the year continues to be positive, at least from a deal volume standpoint. The recovery we have seen in activity is likely to be aided by easing food inflation both output and input.
“Consumer demand has remained steady and this helps provide re-assurance to buyers. As 2023 numbers are delivered and the outlook shifts to 2024, there may be more confidence amongst sellers to bring the larger deals to market.”
