Overseas acquisitions in the food and drink sector doubled last year, with an increasingly large proportion of business buyers coming from outside Western Europe, new research shows.
According to a new report from business and financial advisory firm Grant Thornton, takeovers in the sector by foreign-based firms accounted for 14% of the total, compared with just 7% in 2011.
A growing middle class and changing consumer tastes in emerging markets, as well as the high value of brands plus the safety, security and sustainability of supply that the UK and Ireland offer, were all identified as key reasons for the increase.
Grant Thornton’s Food and Beverage Sector Report revealed that overall last year, the volume of deals in the sector increased by 17% while their value rose by 64% on 2011 figures.
Grant Thornton UK head of food and beverage Trefor Griffith said: “2012 was a big year for investment and acquisitions in the UK and Ireland food and beverage sector, with a lot of activity from foreign buyers. Iconic British brands such as Weetabix and KP Snacks are now foreign owned and we expect the BRIC countries in particular to increase their acquisition of some of the top British and Irish food and beverage businesses.
“However, the picture for availability of capital has been improving in recent months and the potential for developing overseas markets should also give further reason for optimism for UK businesses looking for growth.”
The report shows that while consumers are still looking for value products, they also want to treat themselves with premium end luxuries. Products such as premium chocolate, high end alcoholic drinks and quality pre-prepared healthy meals are particularly sought after.
South West head of food and beverage at Grant Thornton, Bristol-based James Morter, pictured, added: “Experience tells us that the winners in any sector tend to be those businesses with a clearly defined strategy, a strong management team and a sensible financial structure.
“Certainly over the past few years many of our most successful food and drink producers here in the South West have reacted to difficult times by streamlining their processes and investing in technology and new product development.
“This has produced a stronger sector overall, one that is ripe for more of the kind of merger and acquisition activity mentioned in our report. Clearly, however, food and drink businesses must continue to up their game in order to achieve growth, both in terms of innovation, and by managing costs to be able to fund that innovation.”
The report also found that, although funding is still difficult for small to medium sized consumer businesses, capital is increasingly becoming available. One reason is that providers are offering a wider range of alternative financing options, such as asset-based lending.
Mr Griffith said that asset-based lending delivered advantages for both lender and borrower.
“It provides businesses with the chance to secure greater capital, based on the balance sheet of the business and, at the same time, the lender can secure their loan based on the fluctuating balance sheet of the borrower,” he said.
“In the last six months we have witnessed a number of transactions in the sector funded by a combination of asset-based lending, senior debt and private equity sponsors, and these trends are set to continue this year.”
