The overall value of M&A investments in the food and beverage industry dropped by 90%, with the 22 deals between May-August totalling an estimated £270m compared to £3.9bn in the prior year period, according to a report from corporate finance house Oghma Partners.
Kitwave’s acquisitions of MJ Baker Foodservice and Sysco’s purchase of Medina Quay Meats are two high-profile wholesale deals cited in the report, with Henderson Foodservice’s deal for FoodCo NI also included in the list.
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Mark Lynch, partner at Oghma Partners, said: “Year to date August 2022 we estimate that the number of UK F&B deals totalled 50 in the period vs. 62 in the prior year, an overall decline of 20.0% by volume, a decline that accelerated in the second tertial. The more dramatic story is the YTD deal value decline of 90.0% with an equal decline in T1 and T2. The decline in activity is similar to that seen in 2020 when the full impact of Covid on deal activity was noted. However, in that year there was a strong recovery in the final four months of the year as Covid challenges had been faced and corporate activity got back closer to normal.”
“Particularly absent in the first eight months of the current year has been any sizeable transactions. In 2021 for example there were six deals with values ranging from £200.0m to £2.0bn with the average deal size of this group at £1.1bn. The decline in deal activity we believe is related to a number of factors. Firstly, business uncertainty – the trading environment is difficult, many food & beverage companies have had to put through sharp price increases with more to follow in the coming months.
“Profitability is under pressure and the outlook uncertain putting off buyers and sellers alike. Secondly, debt availability and cost – it appears that liquidity is getting tighter with banks less willing to lend and the cost of debt is rising as governments seek to both fight inflation and fund expansionary fiscal budgets. Thirdly, changing appetite for risk – a declining appetite for risk is seen in public markets via rising bond yields, a falling bond market and lower debt availability. Buyers changing appetite for risk is noted by increasing hurdle rates and lower valuations as a result,” he added.
