Private equity deals surge in F&B market

Of the 32 deals announced in the food and beverage sector in Q3, 44% involved private equity (PE), a “significant” increase compared to the 33% in Q2, according to new research from Grant Thornton.

Grant Thornton’s latest food and beverage insights found that the total deal value for PE in Q3 has also increased, from £1.98bn in Q2 202 to £3.7bn in the latest quarter.

The deal value this quarter was notably inflated by PAI Partners’ acquisition of PepsiCo Inc. Excluding this, however, the total disclosed deal value involving private equity for Q3 was £1.3bn.

Overall, the research finds that deal activity remained stable in Q3 2021, with 32 transactions announced or completed, compared to 33 in Q2 2021.

Looking at quarter-on-quarter, deal value also remained steady at £3.8bn, with the three largest completed deals driven by PE.

Meanwhile, cross-border deals dominated the market in Q3, accounting for 56% of activity compared to 49% in Q2. In particular, overseas investments in the UK rose to 44%, compared to 30% in Q2, showing that foreign investors still see potential in the right UK opportunities.

Deli and plant-based companies also piqued interest this quarter, accounting for 22% of deal activity, showing that this ongoing trend in the market has no sign of abating.

Head of food and beverage, Trefor Griffith, Grant Thornton UK LLP, said: “An expected uptick in deal volume failed to materialise this quarter, with numbers remaining similar to Q2. It remains to be seen if this is a hangover from the bumper volumes at the start of the year, which was driven both by a thaw in pandemic-frozen deal flow and the threat of a capital gains tax rise, or caution due to the sector’s many current challenges.

“However, it’s encouraging to see that private equity activity in the sector remains and is, in fact, growing, demonstrating a confidence in investors’ long-term outlook for the sector. This increased activity could be due to trade buyers switching their focus from deals to organic strategy as they battle the operational headwinds facing the industry and the economy as a whole.”

He added: “The sector is continuing to face acute challenges, including staff shortages, increasing costs, and consumer confidence. The budget last week also raised a number of questions. While the one-year 50% cut to business rates for hospitality and leisure companies is a welcome concession, considering the significant impact still being felt from Covid-19, the rise in national living wage may diminish any savings felt.

“Our advice to acquirers is to focus on target companies that are prepared to ‘expect the unexpected’ – those that are ready to take advantage of opportunities and deal with challenges. Buyers must be sure to ask themselves if their target has the following three things: a strong management team, financing, and a clear market position.”