Takeovers boost growth and improve profitability
Charlie Kerlin is head of food and beverage at Grant Thornton (NI) LLP
Last year, 2015 saw an increase of 28% in the volume of merger and acquisition (M&A) transactions in the food and drink sector - the highest number in the last 10 years, according to a recent report by Grant Thornton. Businesses seeking growth are increasingly looking at acquisitions as a means to accelerate their penetration in new markets, with many looking at export markets to counteract slower growth in domestic markets.
There has been a particular focus on health and convenience products with a premium being paid for UK-based brands. Investment has continued in the alcoholic drinks market, with the acquisition of the craft brewer Camden Town Brewery by AB Inbev for £85m and the investment by Jack Daniels into the Irish whiskey market with the purchase of Slane Castle.
Another key driver of mergers and acquisitions is of course the potential to improve profitability by driving out costs, and it is clear that for the right opportunity significant profit multiples are being paid. For example, in 2015 Natural Balance Food, which owns the Nakd and Trek cereal bar brands, was sold to the Belgium-based Lotus Bakeries for a price reportedly equating to nearly 20 times its profit level.
Northern Ireland has seen its fair share of deal activity in 2015 including the acquisition of Moy Park by Brazilian food group JBS for £945m. Meanwhile, two key deals were announced in the dairy sector with the merger of Ballyrashane Co-op and Town of Monaghan, and the deal between Fane Valley and Lakeland Dairies. October also saw the entrance of Adelie Foods into the Irish sandwich market with the acquisition of Bite Group.
Prospects for deal activity in 2016 are expected to remain strong with a significant number of cash-rich companies chasing growth. This is despite the current turmoil in the UK grocery market which, coupled with currency volatility and the uncertainty around Brexit, may serve to reduce the rate of investment in the short term.
This year, the Northern Ireland Year of Food and Drink, provides a huge opportunity for our local businesses to showcase the quality of their products on a global scale.
It is critical to our local economy that a number of our local businesses achieve the scale to be able to compete globally. A key element of this growth may well be through strategic acquisitions.
Grant Thornton's knowledge and experience of doing deals in the food and beverage sector locally, together with our national and international member firms' focus on the sector, positions us ideally to support the growth plans of businesses in Northern Ireland.
For further information or advice on the food and beverage sector, Charlie can be contacted at firstname.lastname@example.org. Grant Thornton (NI) LLP specialises in audit, tax and advisory