M&A activity doubles in UK F&B sector as plant-based firms feel post-pandemic pressure
17 Jan 2024 --- Merger and acquisition (M&A) activity in the UK food and beverage sector increased in 2023 despite the macroeconomic issues that plagued 2022 continuing to suppress higher value deals in the first half of last year, according to a new report by Oghma Partners. Meanwhile, 2023 was a particularly challenging year for the plant-based market amid cost pressures and diminishing post-COVID health concerns.
Although inflation pressures, the cost of living crisis and the increased cost of debt continued to impact M&A activity across the sector, total deal volume rose last year to 116 deals compared to 74 deals in the prior year (up by 57%). The corporate finance house suggests the increase in part reflected pent-up seller activity and the large numbers of businesses acquired out of administration.
Total deal value also went up with an estimated 20% value jump in 2023 to around £2.1 billion (∼US$2.7 billion) compared to £1.7 billion (∼US$2.2 billion) in 2022. Overseas buyers were responsible for 23.3% of total deal volume in 2023.
Beverages was the most active category last year, with around 80% of these deals having an estimated value below £10 million (∼US$11.7 million). A large number of small beer producers made up the volume of beverage deals. Around 25% of deals acquired from administration were beer producers, following an oversaturated market and an intense period of cost inflation.
“We don’t necessarily think there will be more deals in 2024 — the level recovered strongly in 2024, but we do see larger sized deals coming down the track, so the value of deals we expect to rise,” Mark Lynch, partner at Oghma Partners, tells Food Ingredients First.
“Financing terms have stabilized or are easing, and valuation expectations have become more modest. The combination of these two aforementioned factors combined with an easing input cost environment should provide a more palatable cocktail for success in 2024.”
Plant-based problems
Three notable businesses were acquired out of administration in 2023. Vegan Food Group (formerly known as VFC) acquired Meatless Farm in June, Vbites acquired Plant and Bean in July and Vbites went into administration in December.
However, more prominent players also struggled. Heck announced in May that it was slashing its range of meat-free products, while Beyond Meat sales had fallen by almost a third over the previous three months in August. Also, Pret a Manger closed half of its vegetarian- and vegan-only outlets, Nestlé axed its Garden Gourmet plant-based vegan brand in the UK and Love Seitan collapsed.
“The meat-free industry has faced a triple whammy — a cost of living crisis turning consumers away from higher cost meat-free products, cost inflation and much-reduced investor appetite to provide follow-on funding,” says Lynch.
“The plant-based space also suffered from what we would describe as short-COVID — the focus on health and wellness during the pandemic diminishing in the mind of consumers and leading to a reduction in purchasing activity.”
Meanwhile, cost pressures — for what, in many cases, were already premium products compared to non-plant-based options — increased the switching activity back to the mainstream.
Oghma Partners suspects that crowded shelf space and a lack of coherence in the plant-based aisle were also factors in last year’s struggles.
Oghma Partners expects a more consolidated plant-based industry to improve its prospects this year.
Meat-free in 2024
The firm expects the meat-free shakeout to continue this year. However, fewer players with greater scale should be able to provide a focused marketing effort to help re-engage the consumer and retailers in due course.
“The long-term factors that drove excitement in the sector in the first place are unlikely to go away — those businesses and brands that survive this shakeout will emerge the winners over the longer term,” says Lynch.
The second half of 2023 experienced abating inflationary pressures, which led to market opportunities for some of the larger players. Some key deals included the acquisition of Finsbury Food Group by DBAY Advisors, the acquisition of Hotel Chocolat by Mars and the acquisition of Fuerst Day Lawson by Archer-Daniels-Midlands.
There is also the reported sale process of Princes moving toward the final stages, with Newlat confirming it is “in a very advanced stage.”
Oghma Partners also recently revealed that the cell-based meat industry could be entering a period of consolidation amid inflationary pressures.
By Joshua Poole
