The UK food and beverage sector saw a 29% drop in mergers and acquisitions (M&A) deal volume and a 90% decline in deals by the second transaction date of the year (T2), when compared with the same period in the prior year.
Figures from Oghma Partners noted 22 deals for the T2 period with an overall estimated deal value of £270 million compared to £3.9 billion in the prior year period, and 60% of deals had an estimated value of £20 million or less which is a continuation of what was seen in T1.
Overseas buyers accounted for 36.4% of deal volume which is in line with the five-year average of 33%. Notable deals included Solina’s acquisition of Zafron Foods, Lotus Bakeries’ acquisition of Peter’s Yard.
Activity from financial buyers dropped off “significantly”, accounting for 9.1% of total deal volume for the period.
Endless LLP completed their acquisition of KTC Edibles, the Wednesbury-based edible oils supplier which “was probably the largest deal in the UK F&B space during the period”, according to Oghma.
Grocery, including confectionery, was the most active category for the period, with the most notable deal being the Premier Foods acquisition of The Spice Tailor.
Oghma believes that the decline in deal activity is related to several factors, one being business uncertainty. The trading environment is “difficult”, and many food companies have had to put through “sharp price increases with more to follow in the coming months.”
It added: “Profitability is under pressure and the uncertain outlook is putting off buyers and sellers alike.”
Reported in the analysis, debt availability and cost are factors in the decline in deals, as it appears that liquidity is “getting tighter, with banks less willing to lend and the cost of debt is rising as governments seek to both fight inflation and fund expansionary fiscal budgets.”
Oghma said: “We are witnessing rising interest rates around the world which will impact on PE companies’ ability to raise debt to fund acquisitions.”
The report also found “a declining appetite for risk” in public markets via rising bond yields, a falling bond market and lower debt availability. Buyers changing appetite for risk is noted by “increasing hurdle rates and lower valuations as a result.”
It added that sizeable transactions have been absent in the first eight months of the current year. In 2021, for example, there were six deals with values ranging from £200m to £2 billion with the average deal size of this group at £1.1 billion.