FDBusiness.com

New analysis from leading business and financial adviser Grant Thornton UK LLP has found that deal activity in the UK food and beverage sector slowed in the first quarter of the year. The firm’s latest ‘food and beverage insights’ report finds that 44 transactions were announced in Q1 2020. This compares to 49 in the previous quarter (Q4 2019) and 52 deals in the first quarter of 2019 – a 10% and 15% fall respectively.

Total disclosed deal value for Q1 2020 was £298.8 million, across 18 deals with publicly disclosed values. This is a major fall on Q4 2019’s total disclosed value of £3.8 billion (£792 million when the Froneri/Nestlé £3 billion mega-deal is removed). The largest reported deal in Q1 2020 was BC Partners’ acquisition of Pasticceria Bindi SpA, an Italian frozen dessert manufacturer, for an estimated £169 million.

In Q4 2019, the firm’s analysis reported a sharp rise in companies being acquired from administration, with nine deals recorded. In Q1 2020, this activity has normalised with just three transactions recorded. However, it is likely that the level of distressed M&A will rise again through 2020 as a consequence of the impact of COVID-19.

The last quarter of 2019 also recorded the lowest level of cross-border activity in the past few years, a 71:29 domestic to cross-border ratio. While domestic M&A continued to dominate in Q1 2020, the quarter recorded a more balanced level of domestic to cross-border activity (57:43).

The first quarter of the year recorded a significant number of transactions involving private equity (PE) investment. 22 of the 44 deals (50%) involved PE or venture capital investment, with a particular focus on growth capital provided to start-ups and early stage businesses.

Trefor Griffith, head of food and beverage, Grant Thornton UK LLP, comments: “Whilst a decline in deal volume was inevitable in the first quarter of 2020, the decrease is perhaps less drastic than anticipated, since the majority of the period was operating in near enough normal circumstances. The arrival of COVID-19 has impacted M&A in all sectors and, in the food and beverage sector, the majority of processes are now on hold. Any processes at or before the due-diligence stage have mostly been paused, and those at an earlier stage or about to kick off have been delayed.

“The pandemic has resulted, almost overnight, in a profound change in the way the nation buys their food, with an immediate shutdown in the ability to eat out – estimated to be between 30%-40% of food and drink consumed in the UK. Businesses supplying to the food retail sector are currently experiencing a major boost in demand, as consumers stock up and all meals are eaten at home. The online offerings of UK supermarket groups have likewise seen demand increase dramatically.

“There can be no doubt that the remaining quarters of 2020 will bear the full impact of these unparalleled times, and we’re likely to see a slowdown in M&A. The majority of processes are on hold, public companies are more likely to focus on cash conservation (as well as waiting for their share prices to mend) and private equity houses will be more focused on aiding their portfolio companies.

“While M&A activity for 2020 is going to reduce, we are expecting that a number of deals now on hold will likely resume once the situation stabilises and come to market in late 2020 or early 2021. This, added to a higher level of distressed activity and potential clarity around trade agreements post Brexit, could in turn lead to a surge in sector M&A next year.”