Early Recovery in UK Food and Beverages to Boost M&A Activity
69% of senior executives at UK-based food and beverage producers expect M&A activity to increase in the next 12 months, according to a report by Grant Thornton UK LLP which indicates that the sector has recovered early from recession. 20% (10 of the 50 respondents) said that they were planning to broker a merger or acquisition in that period.
By 13th August 2010, only 13 M&A transactions with a total value of £113m had been recorded involving food and beverage targets. The deal value was low compared to 2009, when this sector accounted for 27 deals with a total value of £14.3b. However, the 2009 result was inflated by Kraft’s £13.7b takeover of Cadbury (adding Cadbury’s net debt to the purchase price).
“Food and beverage producers had to digest sharp increases in input prices in 2007 and 2008, leaving the survivors in good shape to bear the recession. Most producers are already targeting growth, while 43% of our respondents are still cutting costs,” comments Trefor Griffith, corporate finance director at Grant Thornton.
In terms of growth strategies for the next 12 months, 46% of respondents are considering expansion into new markets, compared to 66% who are considering new product launches.
“It is remarkable that not a single respondent to the food sector survey highlighted competition from foreign firms as a significant challenge and less than half of them said that the weakness of Sterling was bad for business. Successful British exports include ready meals to France, Indian sauces to Spain, cheeses to Japan and breakfast cereals to China,” he explains.
22% of respondents saw greater domestic competition as one of the biggest challenges facing their business. This compares to 32% who named reduced consumer spending (or spending on premium goods) as the biggest challenge.
In terms of prospects, 52% said that the increasing emphasis on health and wellness presented a significant opportunity. 25% identified the fair trade and free range markets as providing significant opportunities, while 23% said the same about green consumer and local produce.
