Healthy interest in Food & Drink M&A despite recession

In its Summer 2009 report, Catalyst predicts that despite the current global recession, the food and drink industry will see levels of cross-border M&A activity remain resilient in 2009 and 2010. This follows record transaction activity in 2008, during which the value of cross-border food & drink deals exceeded $116bn.

Mark Wilson, Partner at Catalyst Corporate Finance commented: “2008 was a record year for cross-border M&A in the sector. We saw the completion of some of the biggest international deals in history, the stand out deal being the Belgian acquirer Inbev’s $61bn acquisition of Anheuser-Busch. Whilst we are unlikely to see a return to last year’s values due to fewer mega deals, the sector is set to remain an attractive investment area for cross-border M&A. The inherent recession proof nature of many players, as well as opportunities for growth in emerging and certain niche markets will continue to attract investment.”

Catalyst’s research also highlights a number of other factors which will influence M&A heavily in the sector in coming years:

 Discounter supermarkets will continue to engage in aggressive price competition despite benefiting from a trend for consumers to trade down to cheaper products. As a result many will pursue vertical integration M&A strategies and acquire their own production capabilities to retain profits internally and increase their barriers to competition.

 The food & drink industry, in particular in Continental Europe, still contains a disproportionately high level of family owned businesses compared to many other industries. This makes them highly attractive M&A targets for domestic and overseas acquirers as well as private equity (PE) investors, particularly at a time when many families may re-evaluate their own long-term wealth goals in light of the global recession, some choosing to sell out as a result.

 Those private equity investors with access to debt funding will seek to acquire ‘cheaply’ and take advantage of current depressed market conditions. In countries where there is a well developed secondary PE market, for example the Netherlands, we will continue to see buy and sell-side deals over the next 18 months as PE investors re-align their food & drink portfolios.

“There is no doubt that the publication of our latest report coincides with a time of enormous global economic uncertainty, and the food & drink sector is no different from many others in being affected by this change” says Wilson.

“However, our experience in the sector has given us a real insight into the attitudes of the major players and the mid-market at the current time. Despite hardships for some, there is no doubt that there is a real opportunity for others to prosper over the next few years, and we are sure that M&A will remain at healthy levels this year and next as the shake-out continues.”