An expected uptick in deal volume failed to materialise in Q3, with numbers remaining similar to Q2. It remains to be seen if this is a hangover from the bumper volumes at the start of the year, or caution due to the sector’s many current challenges.
Quarter-on-quarter reported deal value also remained steady at £3,803.5 million, with the three largest completed deals driven by private equity.
To help you understand what happened in Q3 we’re sharing our insight on everything you need to know about food and beverage M&A.
All deal activity is based on the announced date of the deal, and includes all transactions with UK or Irish involvement (target or acquirer). We do collate administrations, liquidations, and receiverships, but don't count them here as M&A unless these companies were subsequently acquired.
Deal volume
Deal activity remained stable in Q3 2021, with 32 transactions announced or completed, compared to 33 in Q2 2021.
This inertia could be caused by any number of headwinds facing the industry, including:
Deal value
We primarily source deal values from corporate websites, but we also look to deal databases, including BvD Zephyr, Capital IQ and Mergermarket, or press commentary released at the time of the deal. Deal values may subsequently be amended pending earn-outs or other financial arrangements, and/or as further detail is released by the acquirer.
Total disclosed deal value for Q3 2021 was £3,803.5 million across 12 deals with disclosed deal value. The largest deals in the quarter were:
Private equity
Of the 32 deals announced in the quarter, 43.8% involved private equity (PE), compared to 33.3% in Q2. This could be due to trade buyers switching their focus from deals to organic strategy as they battle the operational headwinds described above. However, it's encouraging that PE’s typical 3-5-year outlook on the sector is positive.
Total deal value for PE was £3,701 million, up from £1,989 million in Q3 2021, notably inflated by PAI Partners acquisition of PepsiCo Inc. Excluding this, the total of disclosed deal values was £1,325 million.
International interest
Cross border deals dominated the market in Q3, accounting for 56% of activity compared to 48.5% in Q2. In particular, overseas investments in the UK rose to 43.8%, compared to 30.3% in Q2, showing that foreign investors still see potential in the right UK opportunities.
![Map illustration depicting percentages of cross border deals and oversea investment]()
Insolvencies
There were seven insolvencies in Q3, compared to three in Q2. The casualties included three manufacturers, one grower, and three hospitality providers. To date, none have been acquired from administration. Now that government support measures are finished, we expect to see more business failures in coming quarters.
![f&b-q3-sector-spotlight.svg]()
Meat-free and multinational
Deli/plant-based food and beverage companies accounted for 22% of deal activity, showing that this trend has no sign of abating. Private equity has been particularly active in this growing sector, which is now attracting niche funds, such as vegan investors Veg Capital. Notable deals include:
Unovis Asset Management acquired Wicked Foods Ltd, a plant-based meats, meals, and desserts business for £10.1 million.
S Ventures Plc acquired Pulsin, a plant-based nutrition protein bar manufacturer, for £7.5 million.
Veg Capital invested in Clive's Purely Plants: plant-based pies, savoury tarts, quiches, and nut roasts. The deal value was not disclosed.
It’s worth noting that it’s not just minnows who are innovating in the plant-based sector. From October, vegan fast-food fans can tuck into a McDonald's newly launched McPlant burger (and nip out to buy a Cadbury’s plant bar for dessert). Likewise, Nestlé introduced the dairy-free KitKatV in July. The entrance of large multinationals, and their established teams of food technologists, into this market may be a challenge to the smaller companies currently dominating the field. On the other hand, they could be a source of future investment.
Making dough
Although carbs have fallen out of fashion with health-conscious consumers, bakery remains a huge sector with opportunities in niche spaces.
Bakery deals accounted for 13% of deal activity in Q3, including Bain Capital’s £200.0 million acquisition of Bread Holdings Ltd, owner of GAIL’s Bakery. GAIL’s, an upmarket bakery chain with high street locations, is well-positioned to profit from suburban home-workers looking to buy lunch. On this, Pret A Manger chief executive Pano Christou recently commented that in the face of a hit on its city stores, the chain would focus on where its customers are located, with a push on delivery and the launch of retail products.
Other Q3 bakery deals included the sale of Healthfull Holding’s Group (parent of Wholebake Ltd) to its management and Elysian Capital, which we advised on. Wholebake’s portfolio includes weight management, sports nutrition, toddler snacking, healthy indulgence, vegan-friendly, digestive health and mainstream better-for-you brands. The above-mentioned sale of Pulsin, which makes Keto and protein bars, also falls into this category.
Looking forward
The flurry of Q1 2021 deal activity was driven both by a thaw in coronavirus-frozen deal flow and the prospect of a capital gains tax (CTG) rise, which failed to emerge in the March Budget. Businesses are well aware that the CTG threat hasn’t gone away and we may see a similar spike in deal activity before the next budget.
As for uncertainty surrounding the industry’s reaction to challenges such as staff shortages, increasing costs, and consumer confidence, our advice to acquirers is to focus on target companies that are prepared to ‘expect the unexpected’ –ready to take advantage of opportunities and deal with challenges. Buyers must ask themselves if their target has the following three assets:
A strong management team
Does it have the skillset to adapt to changing and unexpected industry conditions? Suppliers, for example, will be closely inspecting their relationships with the respective new owners of Asda and Morrison’s (which recently agreed a sale to US private equity group CD&R). Private equity’s modus operandi is to reduce costs, and F&B management teams will need to strategise accordingly.
Financing
Does it have strong underlying finances to support a sudden change in direction, or deal with rising costs?
Clear market position
Does it have a strong USP? Eg, how is a new meat-free product different to the many other plant-based alternatives already on the market?
The vital nature of F&B means the sector will always be resilient. Successful M&A lies in identifying which businesses are fit enough to flourish amid current challenges.
For more information and guidance on M&A in the food and beverage sector, get in touch with Trefor Griffith.
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