Appetite grows for deals in food and drink sector, says report

May 1, 2012

The West’s food and drink sector is set for a period of sustained mergers and acquisition (M&A) activity, according to accountants and business advisers Grant Thornton.

Research by the firm shows 80% of private equity (PE) houses plan M&A activity in the sector and the same percentage of corporate respondents believe growth will be achieved through acquisition, suggesting the recent uptick in M&A activity in food and beverage (F&B) will continue.

The report is based on the opinions of senior representatives from PE houses and corporates investing in the F&B sector in the UK and Ireland.

Grant Thornton’s head of F&B Trefor Griffith said: “Our research backs up the level of activity we are witnessing and shows that the time is ripe for M&A activity. Most businesses have reacted to the downturn by tightening their operations and processes.

“Strategies such as re-engineering products, removing waste and cutting out non-value-adding activities are all having an impact. These leaner, battle-hardened businesses have worked out how to survive and even grow, so M&A at home and abroad is the next logical step.”

The two highest profile M&A deals in the sector in the South West over the past year were Piper Private Equity’s sale of Gloucestershire-based cordial and presse firm Bottlegreen Drinks to the SHS Group in May 2011. In March this year Dutch group Wessanen acquired Dorset-based Clipper Teas. The business was acquired from funds managed by FF&P, which bought out the company in 2008.  

In 2011, overall M&A deal numbers rose 22% on the previous year reaching almost pre-recession levels. The vibrancy of activity in the sector last year, together with the report’s investor predictions for the coming year, suggests that the trend for sector consolidation is showing no signs of slowing. 

The primary driver of consolidation is cost savings, according to 87% of corporate respondents and 59% of PE ones – that the need for which is a by-product of vast change in the market, and responding to consumer tastes, demand and buying habits.

However 73% of PE respondents and 87% of corporate ones believe the main driver of growth in the next year will be new product development (NPD).

Mr Griffith explained: “While NPD is vital for survival, it also represents significant capital outlay in tough economic times. Consequently some businesses have acquired brands to bolt on to their existing portfolio with a view to adding value to these brands rather than innovating from scratch. This is evidenced by the acquisition of Fray Bentos by Baxters and the recent activity by Symington’s which has been acquiring brands such as Chicken Tonight and Ragu.”

For small and medium-sized businesses in the sector, growth is often difficult to achieve, so strategic acquisition is one way to move forward. Some 60% of PE respondents and 80% of corporates believe acquisition will be a key driver of growth in the sector in 2012.

In order of preference the most attractive niches for PE respondents are healthy eating, branded and premium; for corporate respondents it is branded, own label and premium topped the list.

“With less money to spend and more expensive food prices, UK and Irish consumers are changing the way they shop and the type of foods they buy,” said Mr Griffith. “Investor interest in premium products for example represents the increasing trend for cooking and eating at home, which is partly cost driven and partly because of a cultural shift in attitudes to home cooking.

“Consumers are increasingly buying products of higher quality in the supermarket or in niche high-end retailers, either in the form of ingredients for a recipe or quality ready meals – so businesses that meet this need are particularly attractive to investors.”


Comments are closed.


Reach tens of thousands of senior business people across the Bath area for just £75 a month. Email for more information.