Oghma Partners LLP reviews Merger and Acquisition activity in the UK Food & Beverage Sector for T2 2013.
Overview: Significant drop in deal value in T2 but T3 has already started well

M&A activity in the UK Food & Beverage Sector was lacklustre in the second tertial of 2013 with deal volume almost half the level of the prior year period. There was some offset from a stronger first tertial however despite this, YTD volume of transactions is still down 30% on the prior year period.

The second tertial saw no major transactions (given the R&R deal was recorded just at the end of T1) and as a result the value of transactions in the second tertial is estimated to be in the order of £200mn with the largest transaction being the successful sale of Tyrrells Crisps by Langholm to Investcorp. For the eight months to the end of August, total deal value is estimated at circa £1.4bn compared to £2.8bn in the prior year, albeit the 2012 numbers included the £1.2bn sale of Weetabix to China Bright.

M&A activity in Europe across all sectors was down 24% by value and 14% by volume in 1H* 2013. Thus the decline in UK Food activity in the first eight months of the year to some extent fits in with the broader trends.

It is difficult to identify what is behind the slowing of activity. One factor that may be playing a role is low interest rates. With the majority of deals being businesses sub £10mn and therefore sold most frequently by owner operators - selling a business and banking the cash has been an increasingly unattractive prospect for an owner operator. Higher valuations, rising interest rates and the fear of a post 2015 election increase in capital gains tax might help improve selling activity.

T3 has however started with a bang given the already announced sale of Nom’s UK dairy operations to Muller and Rutland Partners’ investment in Bernard Matthews and most recently the £1.35bn sale of GSK’s Lucozade and Ribena business to Suntory of Japan. Press reports have also highlighted the possible sale of Burton’s Biscuits, Rowse Honey from Wellness Foods and Whitworths Group.

In T2 UK corporates accounted for 61% of acquirers in the quarter, financial buyers took part in 11% of all deals and overseas buyers or subsidiaries of overseas businesses accounted for 28% of all transactions.

The £100mn sale of Tyrrells Crisps to Investcorp was one of the deal highlights in the period. The sale was between a financial buyer and a financial seller. The estimated price to historic sales was 3.6x and price to historic EBITDA was 13.5x – accelerating profit and sales may however have brought this ratio down on the current year forecasts. The sale to another financial buyer vs. a trade buyer is interesting. Despite, one would have thought, having the synergies to justify the highest price, no trade buyer was successful in the process. The lack of trade interest may reflect that potential trade buyers were either content with their current branded portfolio’s and/or were not convinced by the growth and/or margin story vs. the price. Time will tell whether the above judgement was a correct assumption.

A further deal worth highlighting was the ‘sale’ of Science in Sport. Bought by Provexis in 2011, since purchase profits have fallen but sales have increased. The business was spun-off into a separate listed company in August 2013 and a share placing was included in the listing raising a net £1.7mn. The valuation placed on the business was a punchy 40.5x historic EBITDA and 1.7x sales, this market valuation arguably reflects, to some extent, the excitement generated by the sports nutrition sector.

Following on from the £21mn sale of Finsbury Foods’ Free-From operations in February 2013, there has been further activity in the Free-From sector. Boulder Inc of the US, a broadly based ‘health and wellness company’, acquired Davies Bakery, a gluten free bakery business. The transactions, as with deals in the sports nutrition area, highlight the attractions of both sectors to investors/acquirers at this time.

More information and the full report are available directly from Oghma Partners LLP.
For further information please contact:  Mark Lynch
Tel:  +44 20 7958 9878
Fax:  +44 20 7958 9879
Click here to Visit Website: http://www.oghmapartners.com
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