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Predictions of a post-lockdown upturn in food M&A activity

Deal activity people at table Print publication

15/09/2020

The food and drink manufacturing sector has shown itself to be one of the UK’s most resilient sectors during the Covid-19 pandemic. Although early on in the pandemic we saw empty shelves in supermarkets due to stockpiling, the industry quickly adapted to the shift towards home cooking and product ranges were rationalised and supply chains reinforced. According to a recent report by BDO, businesses which are resilient have value and unlike other sectors that have reined in their ambitions, food and drink manufacturers are still focused on growth and the appetite for M&A remains high. The report suggests that many corporates within the sector remain keen to grow through a mixture of organic growth, product R&D and acquisition.

 Not only will transactions that were put on hold in March get underway again but it is thought that some food manufacturing deals that were pencilled in for a 2021 launch will be brought forward to the last quarter of 2020 after businesses experienced better than expected sales during lockdown.

According to one leading corporate financier: “There are many food deals set to be launched in September and October. Trade buyers will be acquisitive. When private equity looks across sectors for where to invest, they are definitely not buying in leisure, travel, aero. They will be asking ‘what will perform well and be defendable if there is another coronavirus spike?’ and food manufacturing, with the big rise in in-home consumption, performed better than most. PE thinking is that in a pandemic environment, food manufacturers are not a bad business to have in the portfolio.”.

Food Manufacture magazine suggests that companies are gearing up their acquisition programmes to achieve better market positions, driven by a spike in demand for domestically produced food which is in turn compounded by a backlog of international freight. Just this week, Waitrose and Nestlé were reported to be amongst the interested parties vying to acquire farm-to-fork recipe box brand Mindful Chef valuing the business at around £50 million.

So, if these predictions bear fruit, we can expect to see an increase in deal activity within the sector over the next few months. Furthermore, the trends that were developing pre-pandemic towards food provenance, meat-less, free-from and health conscious consumers could accelerate in the post-Covid environment.

WM comment

At Walker Morris we have a team of corporate lawyers who are very experienced in leading M&A transactions within the food and drink sector. If you are a director or shareholder of one of those businesses thinking of buying or selling within the next few months please get in touch and we will be happy to share our experience with you.

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