Volume of M&A activity rises but value of deals drop

29-May-2024 - Last updated on 29-May-2024 at 14:37 GMT

Number of deals up: the Spotted Cow in Chichester, West Sussex, is one of the sites Admiral Taverns has acquired from Fuller's

The number of M&A deals in the UK food & beverage sector has risen for the first four months of the year versus like-for-like (lfl) activity in 2023 but value has fallen.

Research has shown the overall value of deals has decreased by 31.7% yet the volume of deals is the highest since lfl activity in 2016.

The future also looks promising according to corporate finance advisory firm Oghma Partners, which has compiled the data in its latest report, with partner Mark Lynch saying deal volumes are expected to remain “robust” while values will increase steadily as economic headwinds improve.

Recent deals in the sector include Admiral Taverns’ acquisition of 37 pubs from Fuller’s for £18.3m this week and Punch Pubs’ taking on two sites last week.

Total deal value has remained low compared to the historic average, according to Oghma Partners, which said despite the recent easing of market conditions in the UK, macroeconomic headwinds have lingered.

No deals above £100m

This has stifled larger transactions, with only 4.7% of deals being above £50m and none surpassing £100m.

In fact, 75% of deals had an estimated value of £10m or less as a continued absence of middle to higher market deals have taken place.

The alcoholic beverages sector continued to be active, with almost all beverages deals involving the acquisitions of breweries of craft beer and distillers of branded spirits. Similar to last year, this sector was also responsible for a large proportion of distressed M&A activity, as alcoholic drinks producers accounted for 33.3% of the deals out of administration.

Inflation and high interest rates have created a difficult trading and funding environment for smaller businesses, with acquisitions out of administration accounting for 14% of deals.

Confidence has risen

Lynch said: “Looking forward, we expect deal volume to remain robust and deal values to pick up gradually as market conditions improve.

“The start of 2024 has seen the UK economy exit the recession it entered in the second half of 2023, and both consumer and business confidence have risen substantially since last year.”

He added a fall in interest rates in March, a drop in food price inflation and anticipated Bank of England rate cuts later in 2024 “creates a positive outlook for M&A activity in the UK food and beverages sector”.

“However, it might take time for deal values to pick up again to their pre-pandemic levels,” Lynch added. “We anticipate divestments to be a large source of M&A activity, as companies look to refine their portfolios and carve out under-performing or non-core assets. Private equity deals are expected to pick up when financial conditions ease.”