Global M&A activity has increased by over a third in the last twelve months, with the early part of 2015 seeing a dramatic boom in transactions. Of particular note, in the UK more than £20 billion worth of food and drink deals took place last year, according to figures from Catalyst Corporate Finance ("CCF").
Market consolidation in food and beverage remained robust in the first quarter of 2015, and given that deal values for larger transactions tend to be publicly reported, the significant number of M&A deals for which the details were not disclosed implies strong M&A in the SME space. UK targets remain as attractive as ever, the acquisition by Bright Foods of the remaining 40 per cent of Weetabix being just one high-profile example.
Intense competition driving food and beverage M&A
Low interest rates and substantial corporate cash reserves have been positive for the wider M&A environment, and large food businesses have been under pressure to increase profits (a not completely novel state of affairs, to be sure). A competitive landscape that is almost unrecognisable compared to what it looked like just a decade ago is forcing large food concerns to be more efficient than was necessary in bygone days to keep shareholders content. A rethinking of conventional business models would appear crucial in many cases, and the imperative to discover new routes to growth is stronger.
Such an imperative goes hand in hand with the food and beverage industry’s thinking around how to benefit from mergers and acquisitions. Small brands contemplate deals with bigger players in order to compete more effectively and reach untapped markets. Large food companies have been pursuing relationships with smaller, nimbler brands to diversify their portfolios and excel in a rapidly evolving marketplace.
With encouragement coming from various authorities that consumers follow a healthier diet, and the wider development and adoption of fitness-focused technology, many food companies have put dealmaking on the front burner to improve their profile and exploit these new market trends. Whether buying into a product category or unlocking the value from their own product line – high-protein, organic or gluten-free – satisfying increasingly diverse consumer trends adds a dimension of complexity and opportunity to the selection of M&A targets.
Overall, the potential that M&A holds for the food industry is now of a different order. It presents a host of pathways to maintaining a competitive edge in existing marketplaces, or to quickly enter new ones created by fast-growing niche operators. Signs point to deal activity remaining energetic throughout 2015.