T1 22 M&A totals £300m as firms face inflation struggles and higher costing deals
Boutique advisory Oghma Partners has reported a year-on-year drop of 10% in UK food industry M&A volume within the first four months of 2022.
A total of 28 transactions were carried out between January and April 2022, with an accumulated value of £300 million.
According to the firm’s triannual report, average deal value dipped 85% during the four month period, with two thirds of deals having an estimated value of £10 million or less.
Deals with a value of under £10m accounted for 67.9% of total deal volume for 2022 T2.
The beverage sector saw a ‘higher than usual’ level of activity with a number of niche independent companies being acquired.
Overseas buyers accounted for 25% of all UK deal transactions, while financial buyers also backed 20% of deals in the sector and corporate buyers accounted for the remaining 53%.
While total transaction volume slumped in T1 2022, there was still more movement than during the peak Covid-19 pandemic months of 2020, when volume was down 20% on this most recently reported period.
“The food & beverage market is never dull, in recent years the challenges have been Brexit, then Covid and now rapid cost inflation across agri-inputs, labour and utilities and as we currently transition into the summer months a cost of living crisis. One final piece in this rather messy jigsaw is liquidity,” Oghma Partners reported.
“Looking into the second half of 2022 reluctant central banks may have to increasingly turn the tap off as the struggle to put the inflation genie back in the bottle. This action could lead to a great challenge financing deals or a higher cost to finance deals – either way it adds another challenge to the M&A outlook,” the firm added.
The report highlighted a continued interest in the healthy lifestyle category as Scandinavian consumer behemoth, Orkla announced the acquisition of dietary supplements producer Healthspan for an initial consideration of £65 million.
As part of the deal, the buyer pledged an additional £20 million, to be paid once the company has met certain targets.
“Given the pressures in the market, we suspect buyers are going to increasingly ask for earnouts or deferred consideration,” the report read.
Date Published: 18 May 2022