Merger and acquisition (M&A) activity is on the rise in the UK food and drink industry, a report by corporate finance firm Ogma Partners has found. Trading volumes in the first four months of 2024 increased compared to the same period in 2023 and reached their highest level since T1 in 2016.
However, deal values remained low, with only 4.7% of deals having an enterprise value of more than £50m and no deals exceeding £100m. Total transaction value decreased by 31.7% compared to the same period last year. This is primarily due to continued severe macroeconomic headwinds in the UK, despite recent easing in market conditions. Additionally, 14% of deals were controlled acquisitions, as inflation and high interest rates created a difficult trading and financing environment for small and medium-sized businesses.
This third quarter also saw a decline in private equity transactions, which accounted for 9.3% of deal volume. Of those that did occur, valuation coverage was lower. This was due to financial buyers' reduced ability to transact due to high interest rates. Additionally, as a result of geopolitical and economic uncertainty, overseas buyer activity decreased to 11.6% of deal volume. However, M&A activity among UK corporate buyers increased significantly, accounting for 79.1% of deal volume.
In T1 2024, the distribution sector was very active, especially companies providing food services. Examples include the acquisitions of Vegetarian Express and Total Foodservice Solutions. The beverages and food/confectionery sectors also accounted for the majority of trading activity.
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“Positive outlook”
A previous report by Oguma Partners, published in January, found that UK M&A deal volume and value was set to grow significantly in 2023, but issues such as cost pressures from inflation, the cost of living crisis and rising debt costs continued to restrain high-value deals. The report also revealed that plant-based companies faced a difficult year due to inflation and investors' reluctance to provide additional funding.
“We expect deal volumes to remain strong going forward, with deal values to gradually recover as market conditions improve,” said Mark Lynch, partner at Oguma Partners. “At the start of 2024, the UK economy is emerging from the recession it entered in late 2023, with consumer confidence and business confidence having increased significantly since last year.
“Inflation in March fell to its lowest level since September 2023. Food price inflation is also in line with this pattern, marking 12 consecutive months of easing in interest rates. The BoE has kept interest rates unchanged at 5.25% since September 2023, with a rate cut expected in the second half of 2024. The combination of these factors creates a positive outlook for M&A activity in the UK food and drink sector, but this may take time. It is time for deal values to recover to pre-pandemic levels again.”
