Merger and acquisition deals within the UK’s food and beverage sector have dropped by 29% following a difficult trading environment which has seen retailers increasing prices to mitigate inflationary cost pressures.
Buyout value also saw a decline of 90% between May and August, according to the latest report from corporate finance house, Oghma Partners.
Analysing 22 deals within this period, Oghma Partners recorded an overall estimated deal value of £270 million in comparison to £3.9 billion during the same time in 2021.
However, 60% of deals had an estimated value of £20 million or less which corresponds with the figures between January and April of this year.
Despite the sectors decline in buyout deals, the grocery and confectionary categories were found to be the most active with deals including Premier Foods acquisition of South East Asian meal kits and accompaniments brand, The Spice Tailor for £43.8m in July.
“The decline in deal activity we believe is related to a number of factors,” Oghma’s Partner, Mark Lynch said.
“Firstly, business uncertainty – the trading environment is difficult, many food & beverage companies have had to put through sharp price increases with more to follow in the coming months. Profitability is under pressure and the outlook uncertain putting off buyers and sellers alike.
“Secondly, debt availability and cost – it appears that liquidity is getting tighter with banks less willing to lend and the cost of debt is rising as governments seek to both fight inflation and fund expansionary fiscal budgets.
“Thirdly, changing appetite for risk – a declining appetite for risk is seen in public markets via rising bond yields, a falling bond market and lower debt availability. Buyers changing appetite for risk is noted by increasing hurdle rates and lower valuations as a result.”