Irish agriculture and food & beverage sector set for M&A uplift in 2018

29 March 2018

Richard Duffy, Director at BDO Corporate Finance in Ireland and Head of the firm’s Agri-Food Advisory practice, reflects on the state of Ireland’s food & beverage sector and how it will impact merger & acquisition activity in the coming months. 

The agri-food and beverage sector is Ireland’s most important indigenous industry and has seen a surge in export growth in recent years. 2017 has been another mega year for food and drink exports which rose to a record $15.1 billion in value terms, a 13% increase from 2016 and the eighth year of consecutive growth. As expected, the dairy and meat sectors have been substantial contributors to the overall growth, but the scaling up and internationalisation of prepared/consumer foods and more recently drink companies is a significant development.

It is well known that Ireland is hugely dependant on the UK market for exports. The UK remains a key export destination and accounted for 35% of exports in 2017, which equates to nearly $5.4 billion in value. This is down from 43% in 2015 and 37% in 2016. Ireland’s unique reliance on the UK market is in marked contrast to fellow member states within the EU. In addition, some sectors such as Ireland’s beef industry exports in excess of 50% of its output to the UK and the potential introduction of tariffs and/or quotas when the UK separates from the EU could be devastating for the industry. 

However, improved market reach has been evident over the past 12 months or so, as a greater proportion of Ireland’s exports have gone to other European countries and international markets. The initial depreciation and ongoing volatility of sterling post the Brexit vote in June 2016 and an increasingly competitive UK market environment for Irish products has forced businesses to look beyond the UK. According to the latest Bord Bia export performance and prospectus report (an Irish state agency responsible for promoting sales of food internationally and in Ireland), Irish food and drink exports to the international market increased by 17%. This was driven by increased exports of dairy, prepared foods and drink to the United States, Middle East, Asia and Africa. The United States is now Ireland’s second largest export market with circa $1.2 billion in sales, followed by China. 

Market distribution of Irish Food and Drink exports (%)

The Irish beverage industry continues to thrive, now exporting drinks to 139 markets. There has been growing international demand for premium Irish whiskey (on the back of the ongoing emergence of new distilleries), craft beer and other liquor products, particularly in North America and throughout Asia.

Agritech is another area which has shown potential through a number of emerging companies in this space. Finistere Ventures from the US and ISIF, an Irish sovereign development fund have partnered up, launching a $24 million investment fund to help agritech companies maximise their potential and exploit growth opportunities in international markets. 

Future prospects

There is no doubt that Brexit initially had a slowing effect on M&A transactions, as companies adopted a cautious “wait and see” approach to events. However, despite the ongoing Brexit cloud, the Irish agriculture and food & beverage sector experienced a significant uplift of M&A activity over the last 12 months, with a sizeable proportion of these deals being of the cross-border type.

This has been driven in part by the need for market consolidation in certain industries and by others seeking to diversify and develop an international footprint, looking for new customers and markets. Furthermore, there are more funding options available than any time in the recent past. There is a large pool of uninvested growth capital finance available from equity providers, both locally and internationally, to support ambitious Irish food companies that can demonstrate growth potential in global markets.

In terms of notable deals, there were a significant number of transactions in the protein processing sector. ABP, one of Europe’s leading privately owned beef processors, made acquisitions in Poland and the UK. Another major player in the Irish meat space, Dawn Meats, acquired Dunbia’s beef and lamb processing division in Ireland and entered into a strategic partnership with Dunbia to service the UK market as well. Capvest purchased a leading player in the pork sector, Karo Group, who have operations in Northern Ireland and the UK.

Share of member state Agri-Food exports to the UK (%)

2017 also saw the sale of Irish-based chicken processors Moypark to Pilgrim Pride for $1 billion and Carton Group to Scandi Standard, a Swedish-listed business. There is no doubt that some of the aforementioned deals are seeking to mitigate in part, any post-Brexit impact.  

In the food service, prepared/consumer foods area, Mayfair Equity Partners in the UK acquired a majority stake in Promise Gluten Free, a bakery business based in Donegal, for a reported $120 million. At the back end of the year Musgrave, a leading retail/food distribution group, announced the acquisition of La Rousse Foods and Lily O’Brien’s, the Irish manufacturer of premium chocolate and desserts, agreed to be acquired by Colian Holding, listed on the Warsaw Stock Exchange. Kerry Group, Total Produce, Glanbia and Valeo Foods were all involved in a number of deals throughout the US, UK and Europe. 

The drinks industry saw significant investment by private equity and family office funds alike, along with international trade players. Renegade Waterford Distillery raised $24 million investment, Teelings Whiskey received investment from Bacardi and Spanish drinks group Hijos de Rivera acquired a minority stake in well-known Irish craft beer brand O’Hara, owned by Carlow Brewing company.

In 2018, M&A activity is expected to be buoyant again with a significant portion of cross-border deals. Despite the ongoing challenges faced by certain sub-sectors of the Irish food industry, there is a growing level of confidence amongst Irish companies to scale and diversify beyond the traditional UK market, which they are increasingly doing through M&A activity. Furthermore, Irish food and drink companies will continue to be attractive targets for both UK and international suitors as they seek to maintain free access to EU markets. There is no doubt the uncertainty of Brexit will disrupt M&A transactions. However, it will also create new opportunities for those seeking to adapt.


8 tips for successfully buying or selling a distressed business

18 April 2019

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.