Wednesday, July 15, 2020

Strong appetite for deals in UK’s food & drink sector

Deal appetite in the food and beverage sector remains strong for the second quarter of 2019, according to the latest analysis from Grant Thornton UK.

The summer edition of Grant Thornton’s ‘Food and beverage insights’ report found that private equity (PE) activity in Q2 2019 almost doubled compared to the previous quarter, with 15 deals recorded. This compares to just eight transactions in the first three months of the year.

Overall, deal activity in the first two quarters of 2019 remained consistent, with 53 deals announced and/or completed in Q2. This mirrors the previous quarter’s volume, which ultimately reached 53 deals, bringing the total for the first half of the year to 106. This remains in line with the first six months of previous years (2018:100, 2017: 114).

Disclosed deal value for the quarter was £1,087 million, consisting of 14 deals. This is a 50% fall on the disclosed deal value of the previous quarter (£2,177 million). As seen previously, this lower level is mostly attributable to the lack of mega-deals – deals with a disclosed deal value of over £1 billion.

2017 recorded five mega-deals during the year, but only one has taken place since this period – the sale of GSK’s Horlicks and other consumer nutrition products business for £3.2 billion in 2018.

Domestic deal activity rebounded in Q2 2019, with 28 deals recorded (53% of the total). The domestic to cross border ratio has evened out this quarter to 53:47, from 43:57 in Q1.

M&A activity in the alcoholic drinks sector also remained strong this quarter. In Q2 2019, 14 deals were announced, representing 26% of the overall total. This is a slight increase compared to Q1 2019, which saw 10 deals within the sector.

Trefor Griffith, head of food and beverage, Grant Thornton UK LLP, said: “The food and beverage sector continues to operate in an uncertain market with the recent battle for the Conservative leadership meaning that there has been no further clarity on what Brexit will mean for the industry.

“Against that backdrop it has been reassuring to see the ongoing resilience of M&A in the sector as deal activity has remained buoyant.

“While 2019 commenced with a quieter period for PE investors, it was never a question that PE appetite in the sector had gone away, and investment activity has rebounded strongly in Q2.

“In an uncertain market, food and beverage business owners are increasingly seeking a cash-out deal or partial exit, and this pick-up correlates in part with greater volumes of PE investment.

“With deal activity at the larger end of the scale remaining fairly dormant, deals continue to be more frequent at the lower-mid end of the market. This is also being driven by the ongoing arrival of new entrants to the sector: innovative, disruptive and fast-growing due to their connection with shifting consumer trends.

“It is no surprise that these disruptive businesses soon attract the attention of investors. From alcohol-free spirits through to vertical farming, vegan snacks and personalised pet food, the sector shows no let-up in innovation. It remains a challenging but exciting time for the sector.”

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