3 minute read
FOOD & DRINK
Food & Drink: Sustainability driving M&A trends
Leading south west accountancy firm, Bishop Fleming has a dedicated Food and Drink team with a wealth of experience and expertise. The firm provides insight to over 300 ambitious Food and Drink businesses, with a combine client base turnover of £700 million. Senior manager, Phil Redgate, has significant experience with advising on acquisitions and business sales in the food and drink sector. With a profile of clients across the West Midlands and south west - including Devon and Cornwall; Phil is an expert in corporate finance and works closely with his clients to gain a deep understanding of their visions and goals. Phil explains how sustainability is driving merger and acquisition trends in the food and drink industry…
MERGER AND ACQUISITION TRENDS
Most investment committees have ESG (Environmental, Social & Governance Factors) high on the agenda when looking to make strategic acquisitions. This is especially so in the food & drink industry where conscientious consumers are driving demand for plant-based alternatives. Research commissioned by meatalternative manufacturer Quorn suggests that 41% of UK families now follow a flexitarian or meat-free diet, driving demand for plant-based products as they cut down on meat consumption over environmental concerns. McDonald’s recent McPlant burger launch is the latest example of many big brands re-positioning their ranges to appeal to this ever-growing market. Vast sums are invested in new product development (NPD) each year as manufacturers look to develop and broaden their product ranges. Inevitably consumer trends drive profits which in turn attract interest from investors seeking long-term value propositions and corporates making strategic acquisitions to gain intellectual property and protect market share.
SECTOR DEALS
2021 saw the IPO of Swedish oatmilk producer Oatly at a $10 billion valuation. Recent sector deals include Unilever’s acquisition of The Vegetarian Butcher, a Dutch supplier of vegan patties and nuggets to Burger King. In the US, the continued trend for plant-products was reflected in KPS Capital Partner’s acquisition of Tate & Lyle’s North & Latin American business – the stated growth opportunities coming from the long-term trend towards a plant-based diet by consumers worldwide.
Samworth Brothers (manufacturer of Ginsters Pasties) acquired a stake in Higgidy in 2019 and recently announced plans to invest a further £10 million, as growth in vegan product sales has seen the company’s revenues surge past £50 million. Staying on the pasty theme, Bishop Fleming recently advised on Prima Bakeries’ acquisition of Cornish Premier Pasties, creating a major manufacturer in Cornwall with a strong plant-based product offering in its range.
ESG ISSUES CAN DE-RAIL DEALS
Unilever, one of the UK’s largest food businesses, plans to achieve net zero emissions by 2039 and is currently taking significant steps to achieve this. However, plans to sell its tea brands, PG Tips and Lipton, last year were disrupted after two bidding private equity firms raised concerns over working conditions at plantations in the supply chain and declined to bid. Understanding your supply chain is therefore critical to achieving a successful fundraise or exit. Oatly has recently had adverts banned by the UK watchdog over misleading claims around the green credentials of its milk alternative products and Scottish craft brewery and pub chain Brewdog, which claims to be the world’s first carbon negative brewery, has recently been accused by current and former staff of a “toxic” work culture. Issues such as these can impact investor confidence and ultimately go to value.
VALUE DRIVERS TO CONSIDER
For businesses thinking about raising investment or a sale process, the focus areas are typically on demonstrating differentiated products in growth markets, stable revenues, high margins, low customer/supplier concentration and building a strong management team. Increasingly, positioning the brand values and ESG credentials are becoming key to unlocking value. Product sustainability and full knowledge of the supply chain are areas that buyers are focusing greater attention on. Understanding the environmental impact of the production process is a question frequently asked by investment committees. Businesses such as Higgidy have invested in becoming a B-Corp [meeting high ESG standards and accountability]. Such initiatives can help to show to acquirers that the culture of the organisation they are buying is fully aligned to their own and are therefore important factors to consider when preparing for sale. In summary, food & drink producers thinking about fundraising, or a future exit should look to demonstrate their value proposition when speaking to potential investors. ESG credentials are playing an increasingly important role in defining the value proposition and maximising value.
