The total food and drink industry deal value for 2014 was £6.7bn compared with £5.8bn in 2013, according to the data. The total number of transactions for the year was 153, an increase of 13% on 2013’s 125 deals.
There was continued evidence that price competition between the big supermarkets was impacting suppliers, claimed Trefor Griffith, Partner and Head of Food and Beverage at Grant Thornton.
“This is filtering down the supply chain with well-publicised ‘demands’ for ‘supplier support’ from some of the larger food and beverage businesses,” he said.
Squeeze
“There have been a number of store closures announced by the big four supermarkets and this, added to the rationalisation of products sold, will continue to squeeze the mid-range suppliers.”
Premium and value brand producers appear for the most part to be better placed to achieve increased market share and as a result will have different challenges to face, Griffith said.
“We think that this environment is and will continue to drive consolidation and underpin increasing M&A volumes,” he added.
There was an increase in food and drink firms entering bankruptcy as a result of the supermarkets’ price war and the resulting margin squeeze, the analysis found.
However, the overall number of company liquidations in the sector fell in 2014.
In order to reduce dependency on the major multiple retailers some food and drink businesses had been – and would be – forced to diversify and find alternative routes to market such as foodservice or export, Griffith claimed.
“However this requires investment and if a business is already on the back foot it may not have the capital to invest,” he said. “This again can lead to opportunities for M&A and for outside investors to enter.”
Private equity was involved in 34 deals last year – an increase of 89% on 2013. But total disclosed deal value fell 74% to £826M from £3.5bn in 2013.
Grant Thornton said the decline was accounted for by the significant number of large deals in 2013 – five deals accounted for 91% of the annual overall value.
Key trends
Other M&A trends identified by Grant Thornton included increased overseas appetite for iconic brands, for example the Turkish food and drink firm Yildiz Holdings’ £2bn buyout of United Biscuits.
Food-to-go, seafood and bakery businesses also experienced high levels of activity, Grant Thornton found.
However, Griffith warned the General Election might hamper activity due to market uncertainty and greater scrutiny in to any large transactions.
“Equally the threat of post-election tax hikes might serve as a catalyst for deals,” he said.
“Overall we expect the current trends and drivers in the sector will drive the growth trajectory for M&A deals throughout 2015. A number of large companies have stronger balance sheets than in previous years and M&A can provide a faster means of achieving growth than organic expansion.”