What are recent M&A trends in the food and drink sector?

Economic shifts

Food and drink sector deal volumes fell by 30% in the opening half of 2023, as rising inflation and interest rates, coupled with geopolitical uncertainty, eroded confidence, damping down the M&A activity that had been growing since the COVID-19 pandemic.

However, M&A activity within the food and drink sector has now increased considerably as market conditions continue to ease, with deal numbers hitting their highest levels since 2016. UK corporate buyers have also increased, making up 79.1% of deals, compared with 60.3% in the first four months of 2023. Along with inflation easing and the anticipation that there will be further cuts to interest rates, there is a general feeling that there will be a continued positive outlook for M&A activity in the UK food and drink sector, which is an encouraging prospect for all those working within corporate finance.

Health and welfare

The growth in the food and drink industry has been pushed by the rising consumer demand for healthier options – with growing trends in health-conscious eating, sustainability and convenience. There has been a steady growth in the demand for ‘functional foods’ (which are foods modified to improve health), and the global market for this was valued at £209.6 billion in 2021, with a projected annual growth rate of 9.5% from 2021 – 2028.

Functional foods accounted for some of 2024’s biggest deals, including two domestic (UK and Irish) acquisitions of US companies. In February 2024, Harwood Private Equity acquired US-based Crest Foods, a manufacturer and supplier of dairy stabilisers and private-label food. Crest has an approximate turnover of USD 100 million, and in April 2024, Irish ingredients business Glanbia acquired Flavor Producers, a US-based custom flavours and extracts manufacturer, from Aroma Holding Company for USD 300 million. This highlights the growth of the sector, especially within companies that have a focus on health and welfare for their consumers.

The growth of businesses in this market will likely encourage investment from those within the sector, as well as private equity and venture capital groups looking to make a profit. It is likely that companies will acquire other businesses that cater to these growing areas, such as companies with a focus on plant-based, organic, low-sugar and gluten-free products, to help boost existing established brands and to build a new health-conscious portfolio.

Another example of this is Supreme plc acquiring Clearly Drinks – the manufacturer of specialised canned and bottled-at-source spring water and soft drinks. Clearly Drinks supplies roughly 70 customers nationwide, including major UK retailers such as Waitrose, Aldi, Tesco and Sainsbury’s. This acquisition expanded Supreme’s product range and it now includes sports nutrition and wellness brands showing how important it for companies to adapt to market changes, and consumer demand, as well as expanding their portfolios to avoid being left behind in a competitive market.

Digitalisation and e-commerce

Technology has helped drive the growth of the food and drink Sector in the UK, with digitalisation and the growth of e-commerce playing a huge part in this. There are many food and beverage companies that are acquiring direct-to-consumer businesses to capitalise on these new sales channels. In recent years, there has been a huge growth in food and drink subscription services and meal prep delivery services, such as HelloFresh and Beer52.

Additionally, in April 2024, food producer Samworth Brothers extended its minority stake in The Real Wrap Company to full ownership. The Real Wrap Company specialises in premium food-to-go and has a turnover of c.£30 million. This exemplifies not just the growth in e-commerce markets but also the fact that consumers are increasingly seeking healthy, yet convenient food options that are easy to consume and purchase. Another example of this is the supermarket chain Waitrose acquiring Dishpatch, an online fresh ingredients and recipe box retailer that specialises in meal kits designed by restaurants. A five-dish meal kit for two by London restaurant St JOHN costs £85. This growth in utilising e-commerce and online platforms is arguably going to encourage larger, established companies to acquire these smaller, tech-driven start-ups to enhance their own supply chains and bolster their existing consumer bases.

Alcohol and beverage sector

There has been huge growth within the alcoholic beverage industry with beers and ales once again the most popular subsector for M&A activity as trade buyers consolidate the space. Typical deals included Yorkshire beer producer Great Newsome’s acquisition of East Yorkshire brand Little Valley in June 2024. At the larger end of the scale, Asahi Europe & International acquired US-based Octopi Brewing in January 2024. The move will enable Asahi to begin brewing beer in the US and expand its operation.

Also, as previously mentioned, there has also been a trend in consumers wanting more health-conscious alcohol alternatives (low-alcohol or non-alcoholic) which is why there has been an increase in M&A activity in this area as larger companies are eager to tap in to the growing demand for these alternatives. Companies like Anheuser-Busch Bev have been expanding their portfolios with smaller, high-growth alcohol brands. The Food and Drink sector has seen a growth in M&A activity, which arguably could be steered towards companies wanting to reduce competition and gain economies of scale.

Summary

It is evident that the food and drink sector is growing in terms of activity which is being driven by changes to consumer preferences in regard to health, sustainability, innovation and convenience. It is clear that as companies look to grow, develop and meet the demands of consumers, M&A is likely to remain a key tool in the bid for expansion and diversification in the sector. Consumers are continuing to show confidence in the market and arguably there will be sustained momentum in M&A activity within the sector and the M&A market is likely to get busier as we move in to 2025.