Food and beverage M&A activity reaches highest volume in eight years

The volume of food and beverage supplier consolidation has reached its highest rate since 2016, according to research from corporate finance house, Oghma Partners.

The first four months of 2024 (T1) have seen a 30% increase in the volume of deals (43 transactions) compared to the same period in the prior year.

While deal value overall has decreased by 32% to around £310m, excluding the 2023 sale of Glanbia Cheese to Leprino Foods for an estimated value of £305m would mean transaction value increased by 108% from T1 2023. However, total deal value remained low compared to the historic average.

UK macroeconomic headwinds have stifled larger transactions, with only 5% of deals from T1 2024 worth above £50m and none surpassing £100m. For example, Italian food group Newlat recently halted discussions for its acquisition of Princes, citing the “challenging market environment” in the UK as its reason.

The rise in deal volumes paired with lower deal values is also due to continued distressed mergers and acquisitions (M&A) activity, analysed Oghma. Inflation and high interest rates have created a difficult trading and funding environment for smaller businesses, with acquisitions out of administration accounting for 14% of deals in this third of the year.

Private equity deals have reduced in T1 2024, accounting for 9% of deal volume. High interest rates have cut financial buyers’ ability to transact, with those that have occurred set at lower valuation ranges.

Overseas buyer activity also declined to 12% of deal volume due to geopolitical and economic uncertainties, prompting acquirers to focus domestically. On the other hand, M&A activity amongst UK corporate buyers has increased significantly.

The distribution sector saw one of its most active periods, with a particular focus on distributors supplying to foodservice including the acquisitions of Vegetarian Express by NVM Private Equity and Total Foodservice Solutions by Kitwave Group.

The alcoholic beverages sector continued to be lively, with almost all beverages deals involving acquisitions of breweries of craft beer and distillers of branded spirits. Like last year, this sector was also responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for a third of T1 2024’s deals out of administration.

Looking ahead, Mark Lynch, partner at Oghma Partners, expects deal volume to remain robust and values to gradually pick up as market conditions improve.

With food price inflation easing and interest rates steady, Lynch said: “Both consumer and business confidence have risen substantially since last year. 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.”