According to a review of M&A deals from Oghma Partners, the first four months of 2022 has seen a 85% dip in the value of deals as big deals were absent in the period. This four month period also saw a 'modest dip' in the volume of deals compared to the prior year period (down c.10%).
However, its report stated that the four months from Jan to April this year was too short a period to define any long-term trends. It stressed that the company would be watching the level of deal value over the next four months to see whether the data recorded at the start of the year was indicative of what was to come.
Greater scrutiny
It also said that given the long transaction lead time the impact of food inflationary pressures on deal activity was yet to be seen in M&A activity but there was likely to be 'greater scrutiny' of the processes and the ability of sellers’ businesses to pass on cost increases.
In the deals that did take place it said that overseas buyers accounted for 25% of deal transactions, down from around one third from 2021. Financial buyers held steady backing around one fifth of transactions with the shortfall made up by an increase in UK-based corporate buyers to just over 50% of transactions.
Interestingly, there was a higher than usual level of activity in the beverage sector with several niche beverage producers changing hands in the period such as Bolney Wines, 40Kola, and Broadway Wine Company.
Challenges
“The food and beverage market is never dull. In recent years the challenges have been Brexit, then Covid and now rapid cost inflation across agri-inputs, labour and utilities and as we currently transition into the summer months a cost of living crisis," said Mark Lynch, partner at Oghma Partners.
"One final piece in this rather messy jigsaw is liquidity. It is fair to say that the world has been awash with liquidity as National Bank balance sheets have expanded post the financial crisis and then Covid; combined with low interest rates the environment in which to borrow money has been very favourable. Looking into the second half of 2022 reluctant central banks may have to increasingly turn the tap off as the struggle to put the inflation genie back in the bottle. This action could lead to a great challenge financing deals or a higher cost to finance deals – either way it adds another challenge to the M&A outlook.”
