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M&A Activity Will Drive Growth in Food and Beverage Sector

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M&A Activity Will Drive Growth in Food and Beverage Sector

M&A Activity Will Drive Growth in Food and Beverage Sector
May 04
10:30 2012

The recent acceleration in M&A activity within the food and beverage industry in the UK and Ireland is set to continue, according to business and financial advisor Grant Thornton. The firm’s research report ‘Where is the Smart Money going in Food and Beverage?’ gathered opinions of senior representatives from private equity (PE) houses and corporates currently investing in the food and beverage (F&B) sector across the UK and Ireland.

The research found that 80% of PE respondents plan to conduct M&A activity in the sector and 80% of corporate respondents believe that sector growth in the same period will be achieved through acquisition. This suggests that the recent uptick in M&A activity in food and beverage will continue.

Trefor Griffith, head of Food and Beverage at Grant Thornton, says: “Our research backs up the level of activity we are witnessing and shows that the time is ripe for M&A activity. Most businesses have reacted to the downturn by tightening their operations and processes.”

He adds: “Strategies such as re-engineering products, removing waste and cutting out non-value-adding activities are all having an impact. These leaner, battle-hardened businesses have worked out how to survive and even grow, so M&A at home and abroad is the next logical step.”

In 2011, overall M&A deal numbers rose 22% on the previous year reaching almost pre-recession levels. The vibrancy of activity in the sector last year, together with the report’s investor predictions for the coming year, suggest that the trend for sector consolidation is showing no signs of slowing.

Corporate (87%) and PE respondents (59%) agreed that the primary driver of consolidation is cost savings, the need for which is a by-product of vast change in the market, and responding to consumer tastes, demand and buying habits. Both PE (73%) and corporate (87%) respondents also believe that the main driver of growth in the next year will be new product development (NPD).

Trefor Griffith continues: “Whilst NPD is vital for survival it also represents significant capital outlay in tough economic times. Consequently some businesses have acquired brands to bolt on to their existing portfolio with a view to adding value to these brands rather than innovating from scratch. This is evidenced by the acquisition of Fray Bentos by Baxters and the recent activity by Symington’s which has been acquiring brands such as Chicken Tonight and Ragu.”

For small and medium sized businesses, growth is often difficult to achieve, so strategic acquisition is one way to move forward. 60% of PE respondents and 80% of corporates believed acquisition will be a key driver of growth in the sector in 2012. In order of preference the most attractive niches for PE respondents were healthy eating, branded and premium; for corporate respondents branded, own label and premium topped the list.

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