The first four months of the year have shown a “positive outlook” for the UK F&B merger and acquisition (M&A) activity as the country deals with “lingering” macroeconomic challenges. The volume of deals has gone up by 30.3% compared to the same period last year, pushing the UK F&B sector to reach its highest deal volume since 2016, according to a report by Oghma Partners.

Deal value has decreased by 31.7% (£310.0 million) (US$395 million), however, excluding the Glanbia Cheese transaction from T1 2023 (estimated value of £304.6 million) (388.13 million) deal value actually increased by 107.6%.

“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,” says Mark Lynch, partner at Oghma Partners.

“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 Bank of England has kept interest rates steady at 5.25% since September 2023, with anticipated rate cuts in the latter half of 2024.”

He believes the combination of these factors create a positive outlook for M&A activity in the UK F&B sector, but it might take time for deal values to pick up again to their pre-pandemic levels.

Smaller transactions rise
Approximately, 75.0% of M&A deals had an estimated value of £10.0million (US$12.74 million) or lower, amid a “continued absence” of middle to higher market deals.

“only c. 5.0% of transactions were above £50.0million (US$63.7 million) and there were no deals above the £100.0million (US$127.4 million) mark for the tertial,” highlights the report.

UK corporate buyers accounted for 79.1% of deal volume (34 deals) compared to 60.3% for T1 2023. Meanwhile, financial and overseas buyers drove for 9.3% and 11.6% of deals respectively.

The distribution fared the highest (27.9%) and focused on distributors supplying to foodservice including the acquisitions of Vegetarian Express and Total Foodservice Solutions. The Beverages and Grocery/Confectionary sectors also contributed significantly to deal activities.

Beverages in demand
The beverages segment accounted for 20.9% of all deals driven by rising consumer demand. Almost all deals included the acquisitions of breweries of craft beer and distillers of branded spirits.

However, the segment also contributed to a large proportion of “distressed M&A activity”, similar to last year figures.

Alcoholic drinks manufacturers accounted for 33.3% of the tertial’s deals out of administration.

Meanwhile, the grocery and confectionery segment also accounted for 20.9% of the deals, followed by chilled foods (14%), dairy (11.6%) and other segments like flavors, fragrances, functional ingredients, extracts, inclusions (4.7%).

Macroeconomic headwinds
The nclick="updateothersitehits('Articlepage','External','OtherSitelink','F&B mergers and acquisitions continue to increase in UK, highlights Oghma Partners report','F&B mergers and acquisitions continue to increase in UK, highlights Oghma Partners report','341108','https://www.foodingredientsfirst.com/news/uk-consumers-feel-the-pinch-as-cost-of-living-crisis-spirals-and-impacts-sustainable-food-purchases.html', 'article','F&B mergers and acquisitions continue to increase in UK, highlights Oghma Partners report');return no_reload();">challenging market environment in the UK has impacted manufacturers’ decisions to invest big. only 4.7% of deals from this tertial above were above the £50.0 million (US$63.7 million) mark in the Enterprise segment, while none surpassed £100.0million (US$127.48 million).

For instance, Italian food group Newlat, recently terminated discussions for its acquisition of Princes due to tough market conditions.

The rise in deal volumes paired with lower deal values is also due to continued distressed M&A activity. Inflation and high interest rates have created a difficult trading and funding environment for smaller businesses, with acquisitions out of administration accounting for 14.0% of deals in this tertial.

Positive outlook
Going forward, Lynch anticipates divestments to be a large source of M&A activity, as companies look to refine their portfolios and “carve out under-performing or non-core assets.”

“Private equity deals are expected to pick up when financial conditions ease. There is currently a lot of pent-up demand from financial buyers, with dry powder at record-high levels of US$2.59 trillion globally.”

Acquisitions made by overseas buyers may take a lot longer to return as global conflicts, supply chain issues and worldwide elections taking place this year will continue to create geopolitical and economic uncertainty, he concludes.