UK: Food and drink investment activity remains strong

  • 10 February 2021
Grant Thornton’s Trefor Griffith sums up investment activity over the past year along with thoughts on what’s to come
Trefor Griffith. Photo as seen on Grant Thornton’s website

There’s good news for the food and beverage industry according to Grant Thornton’s head of food and beverage Trefor Griffith, who has penned an analysis of the past year along with his thoughts on what’s to come.

The final months of 2020 performed positively in terms of value and volume of deal activity, even outperforming the same period in the prior year before the pandemic struck.

The fourth quarter of 2020 saw 55 deals announced, compared to 27 deals in Q2 and 34 in Q3. Volumes were also up 12% on Q4 2019.

Deal value for Q4 was £9.6 billion, bolstered by two very large deals: Walmart’s £6.8 billion sale of Asda to TDR Capital and EG Group, and Coca-Cola Europe’s £1.3 billion acquisition of its remaining shareholding in Coca-Cola Amatil. The strong numbers can be partly explained by deals completing that were postponed due to the pandemic.

2020 deal volume was down by 25% compared to 2019. Year-on-year deal value was up 43% on 2019, if the two mega-deals are included. Without these, it was down 48%.

Overseas interest in UK and Irish companies recovered in Q4 2020, accounting for 18.8% of deals, a 233% increase on Q3.

UK and Irish companies buying domestically accounted for 60.4% of Q4 deals, while 20.8% involved UK and Irish companies buying overseas.

Notable Q4 international deals included US consumer group Spectrum Brands’ acquisition of the UK’s Armitage Pet Care for about £140 million, Swiss group Nestlé’s acquisition of UK meal kit provider Mindful Chef, and Italy’s Ferrero purchasing Eat Natural.

The fourth quarter of 2020 saw 24 private equity transactions in 2020, with 24 deals – a 118% increase on Q3, and up by 71% on Q4 2019.

Three factors drove volumes: food and beverage offered a lower-risk option; business owners sold before an expected rise in capital gains tax; and private equity houses continued to identify roll-up opportunities, creating groups from compatible companies. For example, in November, PAI Partners acquired Addo Food Group and Winterbotham Darby, merging the two chilled food companies.

2020 private equity deal volume was up 24% on 2019, its best level since 2016. Q4 2020 deal value was £7.6 billion.

There were four food and beverage insolvencies (excluding bars and restaurants) during Q4 2020, similar to Q3, probably due to the government’s support of businesses.

Lockdown-compatible trends did well as 2020 progressed, including pet food, health and wellness, and alcohol, while wholesale and distribution faltered (down 78.6% on 2019) along with catering (down 90% 0n 2019).

There was a 62.5% increase in pet food activity compared to 2019 and a 240% increase in functional foods, such as probiotics and protein powders.

Q4 investors focused on innovation, including luxury dog food, vegan powdered nutrients, and a yeast dairy alternative.

Pet food accounted for nine Q4 deals. 3i Group acquired a majority stake in natural pet food producer MPM, Harwood Capital-backed Assisi Pet Care acquired pet treats company Hollings, and Capvest bought Inspired Pet Nutrition.

There were eight health and wellness deals in Q4 2020, including investments in Better Dairy, a yeast fermentation company looking to remove animals from the dairy chain, and MPowder, a range of vegan powdered nutrients.

Healthy snacking did well with Valeo Foods’ acquisition of It’s All Good pitta chips and Ferrero’s acquisition of Eat Natural. Deals in functional foods included Unilever’s acquisition of chewable vitamins provider SmartyPants, and FutureYou Cambridge’s acquisition of mature-market supplements business Prime Fifty.

Alcoholic drinks deals in Q4 included Ricard’s majority stake in non-alcoholic gin firm Ceder’s Drinks, and Bacardi’s acquisition of batched cocktails producer Tails.

Q4 2020 also saw the acquisition of three ingredients businesses. Investindustrial VII LP acquired CSM Bakery Solutions, and The Hut Group acquired nutrition suppliers David Berryman and Claremont Ingredients. The owners of food coatings business Bowman Ingredients sold to Solina.

Predictions for 2021

Griffith expects the year to start strongly as delayed deals complete, and sellers attempt to beat the anticipated rise in capital gains tax.

Three main themes will influence activity. The first is changed consumer habits caused by the lockdown, such as the normalisation of home working affecting sandwich shops and convenience stores in business districts.

The second theme is the Brexit deal which has caused a need for overseas companies to open a UK base, and for UK companies to gain a foothold in Europe, which will drive deal activity this year.

Third, the end of the government’s furlough scheme and other support measures will lead to restructuring activity favouring strong food and beverage businesses.

Griffith concluded by stating he anticipates a similar, if not better, performance in 2021.