Recovery in mergers and acquisitions in the food and drink sector are likely to be spearheaded by fresh produce in 2010, as the trade heads for recovery.
Phil Jackson, head of the food sector at auditor and management consultancy Grant Thornton, told freshinfo: “M&A activity in the food and drink sector was extremely depressed in 2009, both in terms of volume and value. Compared to the buoyant market conditions in 2007, deal volumes were down by 47 per cent and over half of the transactions completed related to acquisitions from insolvent companies or businesses in distress…
“Many food businesses are reporting significantly improved profits in 2009 as the impact of food price inflation has reduced and the benefits of cost and efficiency savings have come through… The recovery in profitability is bringing buyers back and encouraging potential sellers to test the market.”
Jackson believes that consolidation in private-label dominant categories such as fresh produce will predominate. He said: “Fresh produce has been at the forefront of consolidation for several years and businesses are maximising their market share in a category before marching into another… Fresh produce has been through two very hard years in 2007, with flooding and bad weather, and in 2008, which suffered the ramifications of food-price inflation.
“In 2009, there was a settling down, with the exception of foreign currency but, overall, a lot of fresh produce companies will have had a better 2009 than 2007 and 2008.
“From an M&A perspective, not a lot of companies wanted to do anything in 2009 when their profits were artificially low, but now with better profits, 2010 could be a good year from a seller’s perspective.”
Eventually, the fresh produce sector in the UK will resemble that of meat and poultry, Jackson believes, where supermarket supply is in the hands of only about five companies as rationalisation increases.
“Companies have to move forward and get bigger,” he said. “And with fewer, larger companies, suppliers are likely to be able to be more robust in their dealings with supermarkets."
No comments yet