Julian Wild, corporate finance partner, Rollits, warned in a recent newsletter to clients that rises in global commodity prices were “no short-term blip”, with speculators earning millions of dollars pushing-up world food prices to record highs.
At best, it might be “too little too late” for food manufacturers passing-on price increases to major retail, food service and industrial customers, he said. “And at worst, requests for necessary price increases are met with a point-blank refusal,”
He added:“All too often these negotiations end up with a stand-off that is only resolved by the supplier refusing to supply.”
Little wriggle room
Nonetheless, leaner manufacturers such as Samworth Brothers, Kanes, Warburtons and Cranswick had coped well, said Wild, since all had “well-invested factories, great products, excellent customers and terrific management".
However, Wild noted Northern Foods’ “sad decline” prior to Ranjit Boparan’s recent takeover, noting its £2bn turnover prior to the demerger of Express Dairies in 1998.
He added that in the 70s and 80s under Nicholas Horsley and Chris (now Lord) Haskins, Northern pioneered the UK convenience food revolution with Marks & Spencer, where it would have been “hard to imagine” Northern succumbing to Boparan in 1998.
“2 Sisters Food Group is another example of a highly responsive, fast-moving company that has given its major customers what they wanted,” he added.
Patchy M&A activity
Wild also wrote that private equity, “previously such a driver of M&A before the recession took hold, has been subdued, wary of the food sector and the power of the major retail and food services buyers”.
Asked about his comments, Wild told FoodManufacture.co.uk:“Private equity is there but is much more selective about investments. But we are seeing an appetite for strong branded businesses such as Bart Spices and Gü, so there are still deals out there.”
“We’ve got a bit busier over the last few months, and have a few things going on. But you never know if this is just your business or the market as a whole.”
Wild added that current M&A activity was “very patchy”, with private equity leading the line and transactions “supposedly in the pipeline”, although nothing had reached fruition yet.
One example was a deal for Tangerine Confectionery, he said (following media reports in May suggesting that private equity player Blackstone Group was in exclusive talks to acquire the firm for £100m+) “although to the best of my knowledge this hasn’t happened yet”.
Wild said:“The banks aren’t lending on attractive terms, and as a result this is depressing valuations. So there are fewer vendors on the market, it’s a bit of a vicious circle.”
“Trade players are keeping their heads down due to the high cost of raw materials and margin pressures.”