New analysis from Grant Thornton UK has reported a fall in deal activity in the food and beverage sector in Q2, but found that deals are still closing amid the Covid-19 pandemic.
The professional services firm’s latest ‘food and beverage insights’ report found that 27 transactions were announced in the second quarter of 2020, a ‘sharp fall’ on Q1 when 44 deals were reported. The Q2 figure represents a drop of 48% compared to the same quarter last year, when 52 transactions were announced.
However, the publicly disclosed deal value for Q2 2020 was £2 billion, a significant increase on the previous quarter when this stood at £298.8 million. This was largely due to two ‘mega deals’: the acquisition of frozen food retailer, Iceland, and the $780 million joint venture between Marston’s and Carlsberg UK.
“It is no understatement that the second quarter of 2020 saw the most rapid change in consumer behaviour since the end of World War II,” said Trefor Griffith, head of food and beverage at Grant Thornton UK.
“The surprise is not that deal volume was down on the previous quarter, but that the fall wasn’t sharper. The surviving transactions were either long-term strategic deals or those that aligned with pandemic-resistant trends, such as healthy eating.
“These deals give some comfort that mergers and acquisitions activity will continue, despite some parts of the sector facing an uncertain immediate future.”
‘Food and beverage insights’ also reported that the willingness of private equity (PE) to invest in the sector has been ‘dampened’ by short-term uncertainty. As such, only 30% of Q2 deals involved PE and related investment, compared to 50% in the first quarter.
Reported insolvencies in the food and beverage sector in Q2 2020 stood at 5. Grant Thornton UK forecasts that this number is highly likely to increase later in the year, particularly when the government’s furlough scheme ends.
Griffith continued: “The remainder of 2020 and beyond is likely to be a game of two halves. It will be a rocky road for those servicing restaurants, office canteens, cafes and coffee shops, while those supplying directly, or indirectly to retailers are likely to boom.
“As well as shaking up strategic priorities, Covid-19 also impacted the sector’s practical ability to transact in Q2; the face-to-face meetings and site visits which form a vital part of due diligence were off the table.
“As we emerge from lockdown, this will likely contribute to an unnatural rhythm in activity, as postponed deals (at least those still considered viable) will complete later than intended.”
