M&A activity across the UK food and beverage industry retracted in Q3 2011 but the picture is still brighter than last year, according to new figures. The latest M&A Tracker from financial and business advisers Grant Thornton UK LLP, which analyses announced deal activity in the UK food and beverage sector, found that the number of transactions fell by 5.5% this quarter compared to Q2 2011. However, volumes were up by 26% on the same quarter last year. The research found that the dry grocery segment has experienced the most activity so far in 2011 with 15 deals, closely followed by meat, fish & poultry with 13 deals. This is similar to the figures seen in 2010. Activity in the soft drinks space has however dropped year on year over the last four years. 2011 has so far only seen four soft drink deals, including Piper Private Equity's sale of Bottlegreen to SHS in May, potentially signalling an end to consolidation efforts in this sector. Trefor Griffith, head of food & beverage at Grant Thornton, said: “We are continuing to see a subdued M&A market in the food and beverage sector and, as is the case with most other industries, volumes are still quite a way off pre-recession levels "However, transactions are still happening, and the first three quarters of 2011 have been significantly stronger than both 2009 and 2010. We have seen a good amount of activity in the smaller company bracket, but more interestingly, the big ticket deals have continued despite the economic climate, as demonstrated by the acquisition of Northern Foods by Ranjit Boparan and Uniq by Greencore. Griffith said that the larger deals were largely driven by the need to consolidate supply channels and diversify customer base. He said: “The current market conditions are forcing food manufacturers to think about cost control and reduction as well as effective pricing to maintain margins. Companies can achieve economies of scale through M&As which can then be used to improve the control of the distribution process and to leverage the business' existing position across bigger markets and gain access to more products. “On the whole, the food sector remains very fragmented, especially when you compare it to the drinks sector, and there is still room for consolidation across most sub-sectors. These markets also lend themselves to economies of scale and we have seen how M&A can drive performance improvements and profitability very successfully in these areas.”

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