What does the future hold for food and beverage businesses?
The past two years have been a time of rapid adaptation in the sector as businesses have grappled with rising inflation and changes in consumer spending on food, as well as managing their rising input costs and costs of production. The ability to pass price increases onto the consumer has reduced so performance in F&B businesses will need to be measured based on volume increases alongside driving operational efficiencies.
While deal levels were healthy in the first half of 2024, it’s no surprise that the M&A community chose to ‘hold steady’ until inflation hit target levels and a new UK Government was in office.
With the expectation of interest rates being reduced further in 2024, debt will become cheaper for buyers and investors. In the meantime, the early general election has unlocked any dealmaking stasis from political uncertainty and, as ever in this sector, consolidation to drive efficiencies will remain an incentive to trade buyers. As a result, I'm expecting continued building momentum in M&A activity in the sector.
Announced M&A activity in food and beverage, biannually
Source: Mergermarket
There were 81 F&B transactions in the first half of 2024, according to our analysis of UK and Irish deal data from Mergermarket. This is largely level with the previous two halves – there were 85 deals in H2 2023 and 79 in H1 2023. The numbers reflect a steady confidence in the sector.
Announced PE activity in food and beverage, biannually
Source: Mergermarket
Private equity (PE) F&B transaction volumes fell for the second half-year running. There were 20 PE deals in H1 2024, compared to 24 deals in H2 2023, and 36 in H1 2023.
PE accounted for 25% of deal activity in H1 2024, compared to 28% in H2 2023, and 30% in the same period last year. The majority (55%) of H1 2024 PE-deals were minority investments.
We expect more activity and larger deals in H2 2024 as the year becomes more predictable following the general election, and if interest rates fall as expected.
In February 2024, pet food manufacturer Sniffers Pet Care secured £0.85 million follow-on funding from its existing backers, 3w Equity (trading as Traditum). Traditum invested £1.75 million in Sniffers’ August 2022 MBO.
In July 2024, sustainable investment platform Planet First Partners completed a £20 million Series C investment round in Plant Meat. Its brand, THIS, will use the capital to launch new products under the new stewardship of the former CEO of Ella’s Kitchen.
The ratio of domestic (UK and Ireland) to cross-border deals was 56:44 for the first six months of 2024, compared to 65:35 in H2 2023. The increase in appetite for international transactions shows confidence in and by UK food producers as the economy improves.
Cross-border deal ratio breakdown by acquirer and target domicile
|
|
H1 2024 (% of all deals) | H2 2023 (% of all deals) |
|
Domestic acquiring domestic |
56% |
65% |
|
Overseas acquiring domestic |
22% |
20% |
|
Domestic acquiring overseas |
22% |
15% |
|
Top 5 Sub-sectors |
% |
|
Beers and ales |
14% |
|
Bread and morning goods |
11% |
|
Chilled ready meals |
9% |
|
Spirits |
7% |
|
Functional |
7% |
Beers and ales were once again the most popular subsector for M&A activity as trade buyers consolidate the space. Typical deals included Yorkshire beer producer Great Newsome’s acquisition of East Yorkshire brand Little Valley in June 2024. At the larger end of the scale, Asahi Europe & International acquired US-based Octopi Brewing in January 2024. The move will enable Asahi to begin brewing beer in the US.
After UK pet ownership rocketed during the pandemic and consumers prioritised spending on their much loved animal family member, pet-related M&A went through the roof. Three years later, it continues to be an active subsector.
The rapid growth in demand for pet food has placed a strain on UK manufacturing capacity. This explains why three out of H1 2024’s seven pet food deals involved production facilities, including the following (in addition to 3w’s acquisition of Sniffers).
In June 2024, CVC Capital Partners took a majority stake in Partner in Pet Food, a European pet food manufacturer, which had revenues of around EUR 800 million in 2023.
In April 2024, Sweden’s The Nutriment Company added UK raw dog food manufacturer Totally Natural Pet Products to its portfolio of premium natural pet foods.
Functional foods accounted for some of H1 2024’s biggest deals, including two domestic (UK and Irish) acquisitions of US companies.
In February 2024, Harwood Private Equity acquired US-based Crest Foods, a manufacturer and supplier of dairy stabilisers and private-label food. Crest has an approximate turnover of USD 100 million.
In April 2024, Irish ingredients business Glanbia acquired Flavor Producers, a US-based custom flavours and extracts manufacturer, from Aroma Holding Company for USD 300 million.
H1 2024 spirits sector M&A comprised a number of small deals, as specialists sought to consolidate and diversify.
In April 2024, English sparkling wine producer Nyetimber bought The Lakes Distillery, a gin and vodka producer. In the same month, US spirits house Rogue Baron acquired UK premium producer Eight Vodka.
Trade and PE-backed premium products in H1 2024, in a sign of early confidence that consumer fortunes are set to improve, particularly for middle-to-high income households.
In January 2024, PE-house Perwyn invested in Italian food brand Crosta & Mollica. The B-Corp-certified food business specialises in traditional unprocessed Italian-themed food products, including pizza, gelato, wraps and snacks made with premium ingredients.
In April 2024, food producer Samworth Brothers extended its minority stake in The Real Wrap Company to full ownership. The Real Wrap Company specialises in premium food-to-go and has a turnover of c.£30 million.
In June 2024, supermarket chain Waitrose acquired Dishpatch, an online fresh ingredients and recipe box retailer, from its founder and VC backers. Dishpatch specialises in meal kits designed by restaurants. A five-dish meal kit for two by London restaurant St JOHN costs £85.
In previous reviews, I've flagged a growing number of early-stage investments in ingredients and manufacturing techniques that aim to solve climate-related food challenges. In May 2024, UK-based Grosvenor Food & AgTech continued the trend by leading a USD 100 million investment round in its portfolio company Meati Foods, which harnesses nutrient-rich mushroom root to produce a sustainable alternative to meat.
The bid for Britvic by Carlsberg A/S is the dominant public market deal for the sector in the period. Having rejected the approach in H1 as undervalued, Britvic has subsequently agreed a revised and improved deal. Carlsberg also acquired the portion of Marston plc’s brewing business that it didn’t own, completing Marston’s divestment of brewing assets.
During the period Supreme plc also acquired Clearly Drinks, the manufacturer of specialised canned and bottled-at-source spring water and soft drinks, broadening Supreme’s product range, which also includes sports nutrition and wellness brands SCI-MX, Sealions and Battle Bites. Supreme has been building its portfolio on market since we advised on its AIM IPO in 2021.
However, Chapel Down, the British wine producer, launched a strategic review, having moved to AIM from AQSE at the end of last year, which includes consideration of a sale of the company. Its share price has more than doubled this year and the company is now valued at c.£130 million, having grown the business on the public market over the last 20 years.
The food and beverage sector has experienced continued steady confidence in M&A activity over the past two quarters. With inflation at 2% and anticipated interest rate reductions, cheaper debt is expected to fuel confidence further, especially when coupled with abundant capital from private equity funds and the incentive for trade buyers to realise efficiencies. I anticipate sustained building momentum in M&A activity in this sector. Amid these conditions, we consider that food and beverage M&A will get busier as the year progresses and we move into 2025.
For more insight and guidance get in touch with Nicola Sartori.
