Has M&A turned the corner post-pandemic?
Inevitably, there are peaks and troughs in the world of mergers and acquisitions (M&A), depending on many factors, including the prevailing economic climate and the availability of funding.
For those of us old enough to remember the ‘noughties’ it was bonanza time for M&A when equity and debt funding was widely available, and there were still trade players in the market as both buyers and sellers. With deals easy to do and almost any business capable of finding a buyer, owners were encouraged to bring their companies to market and sale prices spiralled.
Sadly, or not depending on your perspective, all good things come to an end; investment bank Lehman Brothers collapsed and this precipitated the global financial crisis of 2008. Banks, which had been falling over themselves to fuel the M&A boom, suddenly found themselves with serious liquidity and solvency problems and the drawbridge was pulled up as quickly as it had been lowered to welcome all-comers.
Needless to say, that had a dramatic impact on doing deals, as funding dried up, sale valuations collapsed and business owners withdrew to count the cost of having missed the boat.
There followed a fallow period for M&A until the banks started to come back into the market, but the days of buyers paying crazy prices were over and a more sensible approach to evaluating potential transactions returned.
The relatively sedate state of the market was maintained until the twin turbulence of first Brexit in 2016 and then the worldwide pandemic in 2020 blew M&A off-track again. However, some food and drink categories remained in demand. The Holy Grail has always been a business with high sales growth, low capex requirement and throwing off lots of cash to pay down debt and reduce the amount of equity required.
The alternative approach to paying bumper prices for stellar performers is to look for turnaround opportunities or to take the synergy benefits offered by consolidating an overcrowded corner of the market. This is where trade players come to the fore and we have seen that in the deals announced in recent weeks.
The seafood category is truly global with some very big international companies. One of the larger UK businesses, Sykes Seafood, itself rumoured to be a takeover target not very long ago, stepped in to buy Norfolk-based The Big Prawn Company out of administration. Sykes showed the benefit of being fleet of foot in an insolvency situation. This seafood transaction followed the sale of Billingsgate fish supplier CT Holmes to the Portuguese Brasmar Group last month.
Another consolidator, Finsbury Food Group, this time in bakery, has taken out long-time acquisition target Lees of Scotland in Coatbridge, famous for its sweet teacakes and snowballs.
In another category which is now dominated by big players, French company Europe Snacks, owner of own label producer Kolak Snack Foods, has bought Burts Snacks, based in Devon, which had itself acquired popcorn maker Savoury & Sweet in 2018.
Possibly the most acquisitive company in sugar confectionery is The Serious Sweet Company in Harrogate, which completed its third deal in just over a year with the acquisition of leading marshmallow company Mallow & Marsh following on from the purchase of honeycomb business Mighty Fine and traditional confectionery brand Mr Stanley’s.
At a time when growth in the food sector is not easy to find, M&A becomes more of a priority for companies looking to expand. Whilst interest rates are on the rise, they still remain historically quite low and food inflation is driving turnover up across the board.
It may be too soon to anticipate a glut of deals, but the food sector remains an attractive area for investment and we can expect further M&A activity to come as private equity funds look for better returns. As always, quality management is the key in a fiercely competitive trading environment both in retail and food service. We could be in for a very interesting period.