Is 2018 the right time to make a food and drink acquisition?

The view from the UK’s high streets at the moment is a cause for some concern. Names like the House of Fraser, Debenhams, New Look are all at least facing difficulties, with some closing several chains and others, like Toys R Us, falling into administration in a bid to rescue their business.

The news worsened over Easter, too, with poor weather keeping shoppers from venturing out and footfalls falling by 9.6 per cent on Good Friday and 12 per cent on Easter Sunday, compared with last year.

Consumable concerns

But according to new research from financial adviser Grant Thornton, the pinch is not being felt in one particular part of the high street: the supermarket. Or, at least, firms that sell, package or manufacture food and drink.

According to the company’s latest ‘Food and Beverage Insights’ report, mergers and acquisitions (M&A) in the UK’s food and drink sector increased dramatically in value, reaching a total of £21.4 billion throughout the course of 2017.

This more than twice the value the company recorded in 2016 (£8.4 billion) and, when excluding deals worth more than £1bn, still comes to a sizeable £6.2 billion. It also represents a big upswing in the last quarter of the year, with deals made in the sector from October-December 2017 totalling £7.4 billion.

Grant Thornton’s report suggests several reason for this huge interest in food and drink companies. There is a degree of interest from overseas investors, its authors write, with 33.7 per cent of the 163 deals recorded involving foreign firms targeting UK and Irish acquisitions – slightly up from 32 per cent last year. Private equity also accounted for more than a fifth (22 per cent) of all the deals undertaken, the highest level seen in the sector since Grant Thornton started collecting data.

Food factors

With this in mind, how can those looking to buy a new business – perhaps with the aim of growing it rapidly in a sector that seems full of life – make the most of this opportunity?

According to Grant Thornton’s head of food and beverage, Trefor Griffith, there are widespread pressures on the sector, of which Brexit is probably the most consistent.

He explained: “Of the estimated 400,000 people working in the UK’s food and beverage sector, a third are non-UK EU nationals or born overseas. These numbers have been steadily dropping since the EU referendum vote, in part due to the lack of clarity on the future of European workers in the UK.”

Food manufacturers already feeling the affect of harsher trading conditions and struggling to find staff may struggle to unlock growth, or find the resources to ensure their future success. Those looking to find a new business opportunity could find an undervalued, under-leveraged asset in a food and drink company, therefore.

Time to buy?

Appetite for M&A and the sector remains high, says Griffith, and will grow as the public becomes ever more interested in health and wellbeing, as well as the need for convenience.

Another important factor is that of “premiumisation”, where consumers increasingly expect brands to make high-quality and premium products available to them at high street prices. Companies could have a branded goldmine that they are sitting on, if only they had the leadership of an experienced owner – or enough cash – to exploit it.

As Griffith writes, the sector will always adapt to what consumers want – as will the M&A activity and opportunities for good buys.

He concluded: “Consumer taste buds and preferences are constantly shifting, so the challenge for the sector lies in identifying new trends and being swift to respond to them.”