A report by corporate finance house Oghma Partners has found an increase in merger and acquisition (M&A) activity in the UK food and beverage sector. Deal volume increased in the first four months of 2024 compared to the same period in 2023, reaching the highest levels since T1 2016.
However, deal values remained low; only 4.7% of deals were above £50.0 million in Enterprise Value, and none surpassed £100.0 million. Total deal value decreased by 31.7% compared to the same period last year. This is largely due to challenging macroeconomic headwinds in the UK, which have persisted despite the recent easing of market conditions. Furthermore, 14% of deals were acquisitions out of administration, as inflation and high interest created a difficult trading and funding environment for smaller businesses.
This tertial also saw a reduction in private equity deals, which accounted for 9.3% of deal volume; of those that did occur, valuation ranges were lower. This was caused by a decrease in financial buyers’ ability to transact due to high interest rates. Additionally, overseas buyer activity decreased to 11.6% of deal volume as a result of geopolitical and economic uncertainties. However, M&A activity amongst UK corporate buyers increased significantly, accounting for 79.1% of deal volume.
The distribution sector was very active in T1 2024, particularly for companies supplying food service; examples include the acquisitions of Vegetarian Express and Total Foodservice Solutions. The Beverages and Grocery/Confectionary sectors also accounted for a large proportion of deal activity.
News matches industry predictions
A report by UK & Ireland law firm Browne Jacobson this January predicted further consolidation in the plant-based sector would likely take place. Amid “economic uncertainty, geo-political instability, and rising inflation, companies will need to have a strategy to expand market share and diversify product portfolios as well as investing in innovative technologies as digital and automated businesses offer higher productivity levels and are less impacted by persistent labour shortages,” read the report.
“Companies with a strong financial position and private equity investors may view this as an opportune time to acquire emerging plant-based brands, especially those with innovative products or strong market niches,” the authors added.
This was corroborated by industry figures such as Matthew Glover of VFG and Veg Capital, who stated, “It’s clear that many of the plant-based startups have struggled to hit the fast growth trajectories expected, and with the appetite for investing in this space having cooled, there’s going to be a lot more consolidation required. Some really exciting startups are going to need to consider whether to merge, sell, or disappear, and this is an opportunity for both VFG and the wider movement,” Glover projected in conversation with vegconomist in January, a month before VFG made a further acquisition with the purchase of TOFUTOWN.
“Positive outlook”
A previous report published by Oghma Partners in January found that total UK M&A deal volume and value increased significantly in 2023, though issues such as inflationary cost pressures, the cost of living crisis, and the increased cost of debt continued to suppress higher-value deals. The report also found that plant-based companies had faced a difficult year due to inflation and investor reluctance to provide follow-on funding.
“Looking forward, we expect deal volume to remain robust and deal values to pick up gradually as market conditions improve,” said Mark Lynch, Partner at Oghma Partners. “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 2023; 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.”
