Private equity investors remain interested in the food sector despite overall private equity activity being subdued, according to a study by accountant and business adviser PKF.
PKF corporate finance partner Mark Plampin said: “Private equity M&A [mergers and acquisitions] activity in the food sector was on the rise in the first half (H1) of the year. In H1 2008, seven [private equity-backed] deals worth £143M were completed whereas in the second half of 2007, the same number of deals totalled £115M.”
Hugh Mathew-Jones, head of PKF Corporate Finance, added: “Private equity remains a force in the market, and is certainly more focused than ever on deals in the mid-market space. Distressed assets also remain a significant emerging opportunity as financing difficulties hit certain businesses struggling in the more difficult economy.”
According to the PKF report, Deal Drivers UK, overall M&A activity in the UK food sector increased in the first half of 2008 compared with the second half (H2) of 2007, with 24 transactions worth £597M concluded in the first half, compared with 21 deals worth £569M in H2, 2007.
However, the bulk of the £597M was accounted for by the £350M buyout of Grampian Country Food Group by Vion Group, acknowledged PKF. “Without this deal the sector would have been quiet.”
The second deal of note in the period was the £58M purchase of Cadbury’s own-label confectionery arm Monkhill by Tangerine Confectionery, followed by the £40M buyout of Tyrrells Potato Chips by Langholm Capital Partners.
The remaining deals fell within the mid-market range with the majority in the £100M or less bracket, said Plampin: “There has been a marked reduction in big deals, probably as a result of economic uncertainty, funding constraints and a knock-on effect on exit multiples. Mid-market and small deals continue as decision making for companies in this segment is different, factors such as supply chain squeeze and, increasingly perhaps, cash flow problems continue to drive consolidation.”
As for the rest of 2008, the sector was “likely to be buoyant if reports of a Tate & Lyle buyout by competitor Bunge transpire”, he said. “Tate & Lyle has a market capitalisation of £1.8bn, and a deal of that magnitude would be certain to consolidate the global corn-syrup sector.”
M&A talk is also rife in the dairy sector with the boss of Robert Wiseman Dairies recently predicting further consolidation, with “smaller, less effective companies likely to run into problems, making them likely targets”, noted Plampin.