Despite uptick in food and beverage M&A in T3, year-on-year significantly down
- The UK F&B M&A market showed encouraging signs of recovery in the last four months of the year (“T3 2020”). Total deal volume for the period amounted to 28 transactions which represents a 75.0% increase from T2 2020
- Deal value for T3 2020 also experienced a marked increase with a total estimated deal value for the period of £1,080.m (T2 2020: c. £230.0m)
- Despite the late flurry of deals at the end of the year, the overall deal volume (58 transactions) for 2020 was significantly down (40.0%) from 2019. The picture was equally as subdued when analysing deal activity in value terms. Total deal value for 2020 was estimated at c. £1,511.0m representing a 64.0% decrease compared to 2019.
- Unsurprisingly, both overall deal volume and value for 2020 are the lowest recorded since we began this review back in 2009
- Despite all the market uncertainties surrounding Covid-19 and Brexit, the appetite from overseas and financial investors has remained relatively positive throughout 2020, accounting for 27.1% and 20.3% of total deal volume, respectively
2021 outlook by Mark Lynch, partner at Oghma Partners
After a rebound in M&A in T3 2020, how optimistic are we about deal making in 2021?
- “After the hiatus caused by the first lockdown the level of M&A activity in the UK F&B space has picked in T3 2020. However, this activity did not surpass that of T3 2019 (down 24.0%). Some of the activity has been driven by distressed acquisitions i.e. acquiring struggling manufacturers supporting the foodservice industry. Others have benefited from the lock-down as consumers switch to supermarkets and increase in-home consumption. This has accelerated the sales growth of these businesses enhancing exit prospects. Looking into 2021, the continued rumours around a change in capital gains tax and possibly entrepreneur’s relief has accelerated some sellers move to market. Our expectation would be there will be an attempt to look for an exit before the spring budget which may accelerate activity in Q1 of 2021. Thereafter the outlook is less clear all though the year-on-year comps should improve given the very weak H1 of 2020.”
What is our expectation surrounding valuations?
- “The continued buoyancy of the stock market and low interest rate environment should assist towards improving exit multiples.”
Private equity buyouts have remained fairly strong throughout 2020, with exits lagging behind. Are we likely to see more exits in 2021?
- “Exits will depend upon the strength of the PE portfolios, again those business likely to have done well in the pandemic may look to exit sooner rather than later whilst those impacted by it less so.”
Are corporate divestitures likely to increase?
- “Covid-19 provides good cover to exit troublesome businesses and take asset write-downs, in addition some businesses are clearly struggling so exits allow disposal of loss-making businesses and/or an opportunity to raise cash, so we would expect more corporate divestments into 2021.”
How will Brexit impact M&A?
- “Whilst we see some negative impact on sales to the EU particularly for chilled animal or seafood-based food products we believe the overall impact of Brexit on the UK food industry will be relatively modest. The fact that a deal with the EU has been concluded should therefore be a positive factor for M&A in 2021.”
