The food industry is preparing for yet another increase in M&A deals over the course of 2014. After an active end to 2013, the rush of deals seen at the top end of the market is starting to filter down to the middle-market, with international and domestic buyers showing a particularly strong interest in British businesses.
Reports from M&A professionals have suggested that the rise in deals is being driven by improvements in the economy and a general uptrend in terms of buyers' confidence. However, the interest in British businesses in particular looks to be driven in part by the strength of the country's established brands; look, for example, at the efforts to which Kraft went to push through its hostile takeover of the iconic Cadbury's brand back in 2009.
Speaking to the Food Manufacture Group's Business Leaders' Forum earlier this year, Ben Mercer, corporate partner with law firm Stephenson Harwood, suggested that these trends will become stronger over the coming 12 months: “2014 will be a better year for M&A. The focus will still be very much on opportunities with strong fundamentals, within that the brand will continue to be king.”
Last year, US-based Gores Group's merger with British firm Premier Foods was one of the biggest deals to put the value of brands to the test. The partnership came in at around £87.5 million but Gores Group believes that taking control of Premier's “well-loved, household names” – such as Hovis bread – have made the expenditure worthwhile, despite the mixed reaction from analysts.
For now, bigger companies continue to dominate the headlines; there are mounting rumours that Weetabix could be up for sale again just two years after it was acquired by Bright Foods, while other industry insiders have revealed that Hony Capital is eyeing up a bid for United Biscuits, which includes brands McVitie's and Penguin bars. But this is set to be just the start with activity predicted to filter down as confidence spreads.
As the top end of the market continues to simmer away, smaller high-growth businesses are looking increasingly attractive to investors and competitors. The Billington Group, for example, acquired TSC Foods last year for an undisclosed sum, including the increasingly popular soup brand Glorious!. David Bondi, director of TSC Foods, commented: “This is a fantastic move for TSC and we are delighted to join a family-owned company that is focused on the food sector.
“We have grown significantly over recent years with a focus on innovation, quality and service to all our customers and are proud to continue that success as part of a larger group.”
From Billington's point of view, the deal will help deliver on the company's long term “strategic vision”, helping improve and expand its customer-focused service. While TSC will be able to take their brands – which have flourished under the flexibility and creativity enabled by a small company – to the next level with new direction and investment.
Such recent successes have prepared the market for more deals as opportunities present themselves. However, the success of future deals is not assured and buyers are advised to be aware of the high level of competition coming in from overseas buyers. Geoff Eaton, former chief operating officer for Premier Foods, added in an interview with Food Manufacturer that companies need to look sharp if they want to create the “deal of the century”, and urged buyers to remember that mergers and acquisitions with unsound motives – such as those fueled by debt – have a much lower chance
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