M&A appetite for UK food and drink sector remains despite Brexit

The uncertainty surrounding the UK’s economy does not seem to have slowed the level of merger and acquisitions activity in the UK market. In spite of Brexit, many firms have sought to invest in the sector, egged on by the falling value of the pound, which has made for cheaper deals for overseas investors.

UK food and drink producers are beginning to feel the ripple effects from Brexit, with flat growth rates in the food sector in particular reflecting the tumbling levels of demand seen in the casual dining sector. While the lower value of the pound has seen a boost in exports, the inflationary environment has significantly impacted margins in the food and drink manufacturing segment too, which have fallen below the long-term average. With a great deal of uncertainty around labour provision and the regulatory environment, companies must be on the front foot and investing to boost productivity.

Despite the uncertainty of Brexit – or possibly because of it – however, appetite for mergers and acquisitions in the UK food and drink industry still remains strong. The deflated pound has rendered many companies in the sector a relative bargain to overseas investors in particular, rendering them too good an opportunity to pass up on the basis that the nation may yet see an economic turnaround in the years to come, according to new analysis from Grant Thornton.

Overall, deal activity in the first two quarters of 2019 remained consistent, bringing the total for the first half of the year to 106, with 53 deals announced and/or completed in the second quarter. Disclosed deal value was £1.1 billion, which was made up of 14 deals. While that does represents a 50% decline on the disclosed deal value of the earlier quarter, Grant Thornton ultimately wrote this off as being due to a lack of mega-deals which had inflated the earlier figures disproportionately. The professional services firm also found that private equity activity in Q2 2019 almost doubled compared to the previous quarter, with 15 deals recorded.

With deal activity at the larger end of the scale remaining relatively dormant, deal activity remained robust at the lower-mid end of the market. This is also being driven by the on-going arrival of new entrants to the sector, as innovative, disruptive and fast-growing firms tap into a strong customer service offering, and changing consumer trends. These firms quickly obtain the attention of suitors, looking to buy them up in their early growth phases.

Trefor Griffith, Head of Food and Beverage at Grant Thornton UK, said, “There has been no further clarity on what Brexit will mean for the industry. Against that backdrop it has been reassuring to see the on-going resilience of M&As in the sector as deal activity has remained buoyant… It is no surprise that these disruptive businesses soon attract the attention of investors. From alcohol-free spirits through to vertical farming, vegan snacks and personalised pet food, the sector shows no let-up in innovation. It remains a challenging but exciting time for the sector.”