Fragmentation and competition drive M&A deals in wholesale and distribution

The wholesale and distribution sector was one of the key drivers of M&A activity during the first quarter, as private equity and trade buyers pounced on the opportunity to bring together the fragmented market.

The £2.2bn takeover of Brakes by US catering supplier Sysco was an illustration of consolidation in a sector undergoing significant change, according to the latest quarterly M&A review by Grant Thornton.

“Competition is increasing in wholesale and distribution as the number of routes to market multiplies and existing players diversify,” said Trefor Griffith, head of UK food and beverage UK at the financial services firm.

“There are also an increasing number of specialist operators gaining market share, further fragmenting the market, typified by the five-year joint venture deal struck between Compass Group and DHL to provide catering services across a range of industries.”

The wholesale sector also saw NVM Private Equity selling its minority stake in Kitwave to Pricoa Capital to support the buy-and-build strategy, as revealed by The Grocer.

Other deals in the quarter included Bidvest Foodservice’s acquisition of distributor Caterfood and AB InBev buying beer wholesaler Beer Hawk, Musgrave taking over CJ O’Loughlin Quality Foods and Kerryfresh owner Fresh to Store snapping up chilled van sales distribution business Stocked from Indigo Food Group.

“Generally what you are seeing in wholesale is people trying to get more access to customers via geographies or new products,” Griffith added. “As with the whole of the industry, it’s tough and very competitive so the more cost you can take out by consolidation, the better. Customers are looking increasingly for better prices and better products, but that’s the challenge, and it is often easier to do that via acquisition than trying to do it all yourself from scratch.”

Overall, in food and drink the pace of deal activity in the first three months of the year was similar to the fourth quarter of 2015, with there were 51 food and drink deals in the first quarter deals, 11% higher than a year ago and up on the 49 deals in the fourth quarter of 2015

Total disclosed deal value came in at £2.5bn in the quarter, of which £2.2bn was the Sysco takeover of Brakes. Excluding that transaction, total disclosed value was just £314m, in part driven by very low number of deals with a publicly disclosed value (just seven).

The number of deals involving PE also declined in the first quarter to the lowest quarterly level since 2013. The five PE transactions consisted of three new investments and two follow-on acquisitions in support of buy-and-build strategies.