More activity in buying and selling of businesses anticipated in the food and drink sector

January 13th, 2010 by Chris St Cartmail

There are indications of a recovery in mergers and acquisitions in the UK's food and drink sector after last year witnessed a drop to just 70 deals, compared to 132 in 2007. Furthermore, according to figures analysed by industry experts Grant Thornton UK LLP, over half of transactions completed related to acquisitions from insolvent companies or businesses in distress.

However, share prices for UK food firms rallied through 2009 and, on average, have recovered half of the losses they incurred since the end of 2007. Grant Thornton's Phil Jackson points to the reduced impact of food price inflation and benefits of cost and efficiency savings as reasons for many food businesses reporting "significantly improved profits" last year.

"The recovery in profitability is bringing buyers back and encouraging potential sellers to test the market," he tells Eat Out Magazine.

Another factor he identifies as influencing privately-owned enterprises to consider selling is concern that Capital Gains Tax might be aligned to income tax. A major driver for business sales is the prospect of returns being decimated by up to 50 per cent tax instead of the current 18 per cent, though valuation multiples will be lower than 2007.

"As M&A levels pick up, it is likely that consolidation in private label dominant categories such as bakery, fresh produce and dairy will predominate," Jackson concludes. "Highly leveraged groups may also gauge that the timing is now right to sell some assets to reduce debt."