Dealmakers are confident momentum in the food & drink M&A market is set to ramp up in 2025 after activity in the industry recovered to a five-year high in 2024.
Yeo Valley’s acquisition of The Collective, the buyout of The Real Yorkshire Pudding Company by Compleat and the takeover of Ambala Foods by Cake Box this week signalled renewed confidence in the sector, according to professional services firm Grant Thornton.
Deal volumes climbed 9% year on year to 179 transactions in 2024, while mega-deals such as Carlsberg buying Britvic and PE firm Cinven taking a stake in Vitamin Well helped boost deal values to £11.1bn for the year, the latest M&A insight report from the firm showed.
Nicola Sartori, head of consumer industries for Grant Thornton, said the figures – the second consecutive year of improvement following 2022’s 13-year low – suggested the worst of the inflationary pressures on the sector had passed.
A flurry of activity towards the end of the year as owners rushed to get deals over the line ahead of an anticipated tax hit from a rise in capital gains tax (CGT) pushed transaction numbers in the second half to 98, compared with 79 in the first six months of 2024.
Sartori said she expected to see a boost to deal activity at the smaller end of the market this year, ahead of changes to business asset disposal relief in April. The scheme currently offers owners a CGT rate of 10% on the first £1m of shares sold, rather than 24%, but this will increase to 14% in April and again to 18% a year later.
“It’s a small relief but if you have a smaller business the first £1m becomes disproportionately important and if you are near getting a deal done now you have an incentive to complete before April,” she said.
Sartori added that CGT was not the only driver of improved activity in 2024 as debt markets started to open up again and interest rates began to fall from historic highs.
“For food and beverage M&A, this translated into improved pricing and better loan terms,” she said. “In a tricky consumer environment, lenders backed F&B businesses with manufacturing capabilities, a consistent client base (such as the large supermarkets), and a broad range of products. Equally, we’ve seen large appetites from asset-based lenders, which will lend against stock, even short shelf-life goods.”
Challenges for challenger brands
However, life remained tough for challenger brands, with access to capital still restricted. “Backers are very much looking for EBITDA positive businesses, where in past years before the cost of living crisis investors were much more comfortable with high revenue growth and losses,” Sartori said.
Access to debt is a key component for private equity dealmaking, with transactions completed by firms increasing as 2024 progressed, accounting for 31 deals in H2 versus 20 in H1.
“PE is an important driver for deals, not just because of direct investments but also the bolt-on activity,” Sartori added. “The trend for global CPG players to divest of non-core assets will also continue to spin out to PE through this year.”
She remained optimistic all these factors would lead to another year of increased M&A activity for food & drink.
“There will always be demand for consolidation in a highly fragmented sector, and changing eating habits, such as health and wellness – which are also subject to regulatory influence, such as sugar taxes – will continue to drive dealmaking,” Sartori said.
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