Merger & Acquisition (M&A) activity in the UK food sector increased in the first half of 2008 when compared with H2 2007 figures, according to a study by PKF Accountants & business advisers.

The PKF report, Deal Drivers UK, produced in association with mergermarket, showed that 24 transactions with a combined worth of £597m were concluded in the first half of the year, up on the last half of 2007 when 21 deals worth £569m were announced.

It appears the food sector has stood up well to the economic downturn this year, as Q2 activity value was well over double that seen in Q1 - with £434m worth of deals completed in Q2 while £163m were completed in Q1 - giving a massive 166 per cent increase.

While transactions were larger in value so far this year than in H2 2007, the £350m buyout of Grampian Foods by Vion Group, the Dutch manufacturer of agricultural food and meat, dominated the sector and without this deal the sector would have been quiet.

Most food sector H1 2008 deals fell within the mid-market range - 92 per cent were in the <£100m bracket. This compares to an average figure of 83 per cent for the preceding three years.

Private equity M&A in the food sector was on the rise in the first half of the year. In H1 2008, seven deals worth £143m were completed whereas in the second half of last year the same number of deals totalled £115m.

Mark Plampin, corporate finance partner at PKF, said: “M&A activity in the first half of the year has shown a small but significant rise on the activity witnessed in the latter part of 2007. There is a marked reduction in big deals probably as a result of economic uncertainty, funding constraints and a knock on affect on exit multiples. Mid-market and small deals continue as decision making for companies in this segment is different, factors such as supply chain squeeze and, increasingly perhaps, cashflow problems continue to drive consolidation. It is interesting to note that private equity investors continue their interest in the sector despite overall private equity activity being subdued.

PKF commissioned mergermarket to explore the health of UK M&A across five key industry sectors - hotels & leisure, business services, food, real estate and manufacturing. mergermarket also interviewed PKF’s leading Corporate Finance partners across the UK’s six main regions - South East, South West & Wales, Midlands, East Anglia, North and Scotland for their views on regional activity. The third edition of Deal Drivers UK looks at deal volumes and values in the UK in the first six months of 2008.

Copies of the Deal Drivers UK report can be downloaded from www.pkf.co.uk/dealdrivers

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