Food and drink manufacturing is one of the largest industries in the world.
However, in recent years it has been hit with unprecedented levels of inflation, peaking in the UK at 19.2% in March 2023, and reduced levels of investor confidence.
Nonetheless, some major M&A activity has still occurred over the past year, most notably with the £28bn acquisition of Kellanova by Mars that was agreed to in August.
Other significant transactions include Carlsberg acquiring Britvic, as well as Marston’s 40% stake in the Carlsberg Marston’s Brewing Company, and just this week Supreme rescuing Typhoo Tea from administration.
Major consumer goods companies are refining their strategies by concentrating resources on their strongest-performing brands while divesting smaller or underperforming assets.
James Scallan
Snacking and frozen are ‘categories to watch’
Assessing the potential for increased M&A activity within food during 2025, Scallan, who is a managing director at Houlihan Lokey, said that provided inflation remains cool and interest rates stabilise, a continued resurgence in deal making could take place.
Drilling down into this, Scallan said that he expects to see more moves by private equity firms, which have been “patiently waiting” for the right moment to re-enter the market.
“Lower interest rates would make leveraged buyouts more attractive, and as inflation eases, investor confidence in profit sustainability will improve, unlocking more opportunities and levers for growth,” he noted.
Scallan pointed to snacking and frozen food as possible target areas for investors due to the strong demand for products within these categories that has been driven by a consumer desire for convenience and value for money.
“World foods with its focus on broader taste formats and ideas, is also seeing strong demand which we anticipate will continue into 2025,” he added.
“The ongoing shift towards sustainable and ethical sourcing will also drive deals as consumers increasingly demand transparency and environmental responsibility from brands.”
Another trend that Scallan pointed out is the increased focus among large corporates on streamlining their portfolios, such as Unilever moving to make its ice cream division a standalone business.
“Major consumer goods companies are refining their strategies by concentrating resources on their strongest-performing brands while divesting smaller or underperforming assets,” he explained.
“These divestitures not only enhance operational efficiency but also open up significant opportunities for private equity and strategic buyers to acquire established brands with further growth potential. This wave of portfolio rationalisation is set to remain a key driver of M&A activity, and could play a pivotal role in reshaping the market landscape in 2025.”
As for his overall view on the European food sector, Scallan predicts a more stable and active M&A market moving forward.
“Corporates continue to lead much of the activity, but as economic conditions improve, it’s likely only a matter of time before private equity reasserts itself in the market with renewed vigour,” he continued.
“For businesses and investors alike, the ability to remain agile, capitalise on synergies, and anticipate shifts in consumer behaviour will not just be advantageous but critical to staying competitive in an increasingly dynamic market. Those who adapt swiftly will lead the next wave of growth.”
Financial sponsors are becoming increasingly active in the space and developing a higher appetite to invest in the industry.
Javier Chiquero
Functional drinks ‘retain interest’
On the drinks side of the ledger, Javier Chiquero, who is a vice president at Houlihan Lokey, said there had been a notable level of activity during 2024.
“In the energy drinks segment, Keurig Dr Pepper’s acquisition of Ghost reflects strong confidence in the category’s future, with other brands in the space also performing exceptionally well,” Chiquero explained.
“In functional beverages, Cinven’s acquisition of Vitamin Well is another example of the segment’s strong growth and its attractiveness to private equity. This deal also highlights the increasingly blurred lines between functional food and functional beverages.
“In alcoholic beverages, we’ve seen activity such as Diageo’s disposals of Pampero to Gruppo Montenegro and Safari to Casa Redondo, showcasing portfolio management within the segment.”
Looking ahead to 2025, Chiquero also cited the potential role of private equity: “Financial sponsors are becoming increasingly active in the space and developing a higher appetite to invest in the industry.”
In terms of specific categories, he expects interest in functional beverages to continue growing “as the category continues to expand in response to consumer demand for healthier, better-for-you alternatives”.
“Sustainability is also expected to play an increasingly central role, with consumers prioritising ethical ingredient sourcing and recyclable packaging,” Chiquero continued.
“Additionally, as global firms across categories continue optimising their portfolios, we expect to see further divestments of underperforming or subscale brands that have a raison d’etre, but not in their portfolios. This portfolio rationalisation exercise will create opportunities for private equity as well as mid-sized firms looking to expand their offering.”
Next, Chiquero stressed the importance of innovation and new brand that introduce fresh products, concepts and formats.
“This dynamic is particularly attractive for private equity and venture capital, which are well-positioned to leverage their expertise and value-creation capabilities to support these brands' growth and deliver outsized returns to their investors,” he added.
For established players, he advised capitalising on existing distribution networks that can deliver “post-deal synergies”.
As for new and scaling businesses, he said they should be "thinking about the ultimate buyers for the business and what makes them tick should be one more pillar of their strategy if the ultimate goal is to find the optimal home for the business".
