£700m for Princes suggests the deal famine could be over

After plenty of twists and turns, Japanese conglomerate Mitsubishi has secured a deal to sell its canned food giant Princes in a deal that augurs well for the long-awaited uptick in food and drink dealmaking to finally take hold.

The confirmation yesterday that Italian food group Newlat will buy Princes for £700m seemingly brings to an end a process that has been more than 15 months in the making.

The Grocer reported back in January 2023 the Japanese owner hired investment bank Houlihan Lokey to find a buyer for the brand.

But the process illustrated the difficulty of getting major food and drink deals away during a time of soaring inflation and international volatility, with bidders in the first half of 2023 baulking at Mitsubishi’s asking price.

Now that asking price has been met, it points to a more optimistic time for UK food and drink dealmaking.

The Grocer reported last week that M&A activity in food and drink has picked up so far in 2024, with deal numbers hitting their highest levels since 2016.

Newlat identified a decrease in demand

Data from corporate finance firm Oghma Partners showed deal volumes increased by 30% in the first four months of the year.

However, fewer than 5% of those deals were above £50m in enterprise value and none surpassed £100m, with the market dominated by deals of under £10m and the rescue of distressed assets.

Notably Newlat issued a statement to the Italian stock exchange three months ago in February, saying it had pulled out of the process, blaming falling demand and weakening pricing.

Citing the “challenging market environment” in the UK, Newlat identified a decrease in demand and a significant drop in inflation which it said was “expected to lead to pressures on both sales volumes and on retailers’ demands for price reductions”.

Presumably that angst has lessened, as inflationary pressures on UK consumers have begun to ease and the interest rate environment looks more benign.

It seems especially worth noting that Mitsubishi has achieved the £700m valuation The Grocer exclusively revealed they were pushing for in September, following earlier 2023 talks where bidders had been closer to the £400m mark.

Low-ball bids for Princes

Those low-ball bids caused Princes to restart the process so it could demonstrate it had effectively worked price increases through and regained margin following a turbulent time for input costs.

Princes fell to a £50.6m pre-tax loss in the year to 31 March 2023, down from a profit of £28.9m in the previous financial year despite sales growth from £1.44bn to £1.74bn.

However, the group said it had seen “significant improvements in our financial performance” since the close of that financial year, presumably giving Newlat more confidence on the underlying numbers.

The convoluted Princes process illustrates the difficulties in getting deals done amid hugely divergent views on value from sellers and buyers. However, Newlat clearly sees the UK as a place to do business, having bought Symington’s in post-Covid 2021 and unsuccessfully bid for Hovis a year earlier.

Newlat – soon to be renamed New Princes Group – has been clear it sees the UK as a vital cog in its ambitions to push group turnover to €5bn by 2030.

Many in the sector will be hoping that major vote of confidence in UK food and drink is the first of many over the coming months.