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Signs of Recovery Seen in M&A Activity within the UK Food & Beverage Industry

Signs of Recovery Seen in M&A Activity within the UK Food & Beverage Industry Food & Beverage, M&A, recovery, UK Food and Beverage Business

According to a new report from corporate finance house Oghma Partners, the UK Food and Beverage sector is showing signs of recovery. The report reveals that deal volume in the first four months of 2023 increased compared to the same period in the prior year, while deal value rose by 60.3%. However, over 80% of deals had an estimated value of £10 million or less, as there was a lack of middle to higher market deals during the period. Only 6.0% of transactions exceeded the £50 million mark, falling significantly below the five-year historic average of 12.5%.

Despite these macroeconomic challenges, Oghma expects deal volume to continue to recover. Strategic acquisitions are expected to remain a high priority with carve-outs becoming a more common divestment option as larger corporations look to sell underperforming or non-core assets amidst economic uncertainties.

Mark Lynch, a partner at Oghma Partners, thinks that the increase in deal volume and surge in distressed M&A activity can be explained by macroeconomic challenges and a Covid hangover. He believes that this has resulted in a less favorable environment for larger transactions. Because of this, many deals have centered on distressed assets with synergies at lower, dislocated prices.

As businesses look for ways to consolidate their market position, bolt-on acquisitions have become a common theme. In the opening months, both corporate and private equity buyers focused on smaller deals. However, financial buyers declined by 5% as they pursued smaller options to bolt-on value to their existing portfolio companies ahead of a potential recovery in value after inflation and interest rates eventually plateau.

Oghma Partners expects carve-outs to become an increasingly common divestment option as larger corporations look to trim their balance sheets amidst the economic uncertainty and sell underperforming or non-core assets. Additionally, there is plenty of room for M&A optimism as an increased volume of corporate acquisitions highlights that strategic acquisitions remain a high priority. With greater transparency surrounding genuine financial performance as earnings are no longer distorted by Covid-19 and as inflationary cost pressures abate, this could lead to greater M&A activity and potentially the reduced use of contingent earnout structures.

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