Press Room
Signs of recovery in food and drinks sector M&A following
sharp downturn in 2009
In 2009, the number of food
and drink sector deals involving UK businesses declined
by 30% to just 70 transactions, according to figures analysed by
sector experts Grant Thornton UK LLP. This contrasts
with 2007 when in a buoyant market there were 132 reported deals.
Nevertheless, there are signs of a recovery in mergers and
acquisitions and Grant Thornton are cautiously optimistic for
2010.
"M&A activity in the food and drink sector was extremely
depressed in 2009 both in terms of volume and value. Compared to
the buoyant market conditions in 2007, deal volumes were down by
47% and over half of the transactions completed related to
acquisitions from insolvent companies or businesses in distress."
commented
Phil Jackson,
Head of Food Sector at Grant Thornton.
Excluding the sale of alcohol brands Tennents Lager and Tia Maria
for £180m and €125m respectively, there were no other reported
deals in excess of £70m and in most cases values were not
reported.
Underlying a growing optimism, share prices for UK food companies
have rallied through 2009 and on average have recovered half of
their losses incurred since the end of 2007.
"Many food businesses are reporting significantly improved profits
in 2009 as the impact of food price inflation has reduced and the
benefits of cost and efficiency savings have come through.
The increase in share prices of the quoted companies reflects
this," Jackson explained.
"The recovery in profitability is bringing buyers back and
encouraging potential sellers to test the market".
The ongoing takeover battle for Cadbury and the anticipated sales
of Gu and Kettle Chips reinforce this view.
Another factor influencing privately owned businesses to consider
selling is the concern that the rate of Capital Gains Tax might be
aligned to income tax. Whilst valuation multiples will be
lower than 2007, the prospect of returns being decimated by up to
50% tax instead of the current 18% is a major driver for a
sale.
"As M&A levels pick up, it is likely that consolidation in
private label dominant categories such as bakery, fresh produce and
dairy will predominate. Highly leveraged groups may also gauge that
the timing is now right to sell some assets to reduce debt.
In addition foreign buyers will be attracted by the relative
weakness of sterling," Jackson concludes.
For further information please contact:
Alex Wessendorff, Grant Thornton press office, Telephone: 020 7728
2048, Email: Alex.Wessendorff@gtuk.com.