OurguidetotheSouthwestFoodandDrinkM&Aactivity
Following aspike in M&Aactivity post-covid, market indicators arereporting a slight decrease indeal volumes(as atJune2023),duetothe impact ofstubborn inflation and rising interest rates, resulting in uncertainties inthe wider economy.
Despite this, theoutlook for theFood and Drink sector remains promising as many businesses continue togrow insize and profit, having successfully passed on price rises, which, with current inflation rates, look tohave finally peaked.
Growth via acquisition and consolidation continues and thepassage oftime means therewill always bea steadystream ofowners requiring anexit.
Thedebt market is largely ina risk-averse mode, particularly for smaller deals and for useof conventional bank lending. However, deal activity remains strong thanks toa mixofoverseas buyers, private equity and larger UKbusinesses with significant funds on thebalance sheet.
For larger companies, interest from overseas buyers is common, particularly from thebig USand European food groups, and these will likely feature inanybuyer search process for medium tolarge entities (£15m+ revenue).
ThePrivate Equity sector remains very well-funded and seeking opportunities to deploy capital, as theylook to support ambitious management teams, invest in new ‘platform’ companies and enhance theircurrent platform companies with bolt onacquisitions.
125 UKDEALS
withavalueofbetween
£1-30M
Thecurrent keytobeing attractive toprospective buyersorinvestors are a combination ofthefollowing value drivers:
• An impressive growth story
• Adefensible market position
• Ahigh quality and diverse customer base
• Astrong management team and systems
• Arecognisable, distinctive consumer brand
Regardless oftheabove points, manybuyersand investors have a minimum EBITDA threshold when itcomes toevaluating companies to invest in.Typically, larger companies and investors will make larger acquisitions and investments. That said, thereare exceptions for strategic reasons, such asshare ofa particular market, intellectual propertyand geographical location. And of course, those that are smaller, will attract investment from smaller companies.
Therewill inevitably bethose intheFood and Drink sector that have struggled to manage inflation, inturnallowing some buyersto seize theopportunity to acquire businesses that areexperiencing challenges.
If thereis onedefining trend inthedeal market which is cutting across all sectors, itis thepace atwhich transactions are being executed. Many advisers are reporting thatthe majorityoftransactions are taking longer. Where the default timetable for aprocess mayhave been 4-6 months, a moretypical expectation now would be6-9months.
AverageEBITDAmultiples: 2.5
Micro <£500k
Small <£1m
Medium <£2m
Large <£10m
X
4.4
TheSouth West food and drink market is nothing if notdiverse! With businesses big and small, operating from farm toplate and everystage in-between. TheM&A activity is no different, as we seetransactions ofall sizes and types. Itwasn't easytochoose, butwe have selected arange ofrecent and standout transactions from across the region.
Kitwave is an active buyerinthesector with 8acquisitions under its belt todate.
In2022,theymade two outstanding South West acquisitions; Newton Abbot based MJBaker Foodservice and Cornwall focused Westcountry Foods.
Oasis Europe, Trowers &Hamlins and Old Mill provided advice to thesellers Westcountry Foods.
LDC, aPrivate Equity Investor has made two exciting investments in food businesses in2022.
LDCbacked themanagement team atBristol based Cakesmiths inMarch 2022.
LDCalso took a 39%stake inhusband-and-wife team, Shaken Udder, theUK’sleading premium milkshake brand (East England).
207 Managementteams backed
6.88xEBITDAmultiple
InDecember 2022,Foodbuy Europe acquired Regency Purchasing Group, located inWeston-super-Mare. Theacquisition was driven byefficiency savings from consolidation, as well as boosting pricing power and strengthening supplier relationships.
Old Mill advised Regency Wines and its founders on a Management Buy Out, led by their Managing Director, Jorik Driesen.
Regency Wines is an Exeter-based specialist Wine Merchant, and the only Independent Wine Merchant in Devon &Somerset dedicated purely to the licensed trade
CommentingontheacquisitionKarlAtkins, ManagingDirectorforFoodbuysaid,
“
Iam excited toexplore how RegencyPurchasing Group’s self-developed systems can continue to enhance oursystem offering tosuit individual client needs, as well as bringing together our purchasing power tobuyand operate smarter for ourclients.”
Commentingontheacquisition,leadadviser MarkNeath,said,
“Thetransaction has secured thesuccession of thebusiness from thefounders, whilst enabling its independence and culture to be retained.”
Thegrowth intheregion is remarkable, toshowcase justa morsal ofthis, we have selected afew ambitious businesses making great strides!
BabooGelato,aclientofOldMill,wassetupin2015withtheaimof combininggreaticecreamwiththefreshingredientsfoundontheir doorstep.
Baboopridethemselvesonusingreal,seasonal ingredientsandworking directlywithasmanylocalsuppliersandfarmsaspossible.
Withapassionforgreatflavours,aswellassupportingotherlocal businesses,BaboohaswonmultipleawardsfortheirGelato.
Baboohaveseenimpressiverevenuegrowth,inthemostrecentyear exceedingthe£1.5mrevenuemilestone.
TheFineCheeseCo.is agroupalsocomprisingofArtisanBiscuitsLimited, theyarearetailerandexporterofBritishartisancheese,whichthey maturethemselves.
Theirproductsaresoldinover600independentretailersacrosstheUK,in over30countriesandonlineontheirwebsite.
TheFineCheeseCo.is onetowatchastheyhaveseenexceptionallyhigh revenuegrowthof38%from2020to2022.
IdealFoods, basedinCornwall,exportfishproductstomorethan40 countriesworldwide.
Thebusinesshasseenbothconsistentandstronggrowthinrevenueand profitabilityoverthepast threeyears,witharecordrevenueof£18.6min thelastfinancialyear.
IdealisoneofthefirstbusinessestobeawardedtheesteemedKing’s AwardforEnterpriseforInternationalTrade.
TheStanilodGroupis comprisedofBarnesWilliamsandBW Catering Products,whichspecialiseinsupplyingfoodingredientssuchasculinary herbs,spices,garlic,onion,chilliandtomatosourcedfromalloverthe world.
Havingconsistentlytradedatthecirca£12mmark,theysawarecordyear witharevenueincreaseof38%from£12.8to£17.6m.
Therewasequallyimpressivegrowthingrossprofit,increasingfrom £1.95min2020to£2.29min2021andmostrecentlybreakingthe£3m thresholdat£3.06m,animmenselyexcitingincreaseof57% overthetwo years.
We asked ourHead ofFood and Drink for his outlook onthesector in thecoming years. Specifically, thechallenges and theopportunities thathe thinks will arise.
PhilMills HeadofFood&DrinkatOldMill
TheSouth West Food and Drink market never fails tosurprise me! As despite theobvious (pandemic /current economic turbulence), businesses big and small remain steadfastly committed tofuture growth and showcasing all that theycan offer.
Haveyourcakeandeatit!?-Therecertainly feels like anever-growing pressure todeliver an impossible combination ofSustainability, Quality and Affordability!!
While each business will find its own way ofbalancing thesethree areas, inmyview thereis onenon-negotiable; sustainability. Consumer and industry pressures areonlygrowing and while manymight still view itas aUSPfor now, itis fast becoming anessential part of operating intheF&Dsector, and those that don’tembrace itare going tostruggle.
A little about us…
Old Mill is a regional South West firm, with a little over 400 staff and 5,000 clients. Weourselves areonour own exciting growth journey,both organic and via acquisitions!
Our CorporateFinance Team focuses onbuying and selling owner managed businesses. We also undertake a whole hostofCorporate Finance activities tosupport a business throughout its entire life cycle, from start-up to exit.
TheCorporate Finance Teamworks closely with David and Stephen, our CorporateFinance TaxSpecialists, allowing us tohave aseamless M&A process all managed inhouse.
Whether it’s some general fact finding, oryouareset on executing an acquisition orsale and want tobetter understand theprocess, we would bedelighted toshare ourknowledge with you.
ContactDetails
shona.eustace@om.uk mark.neath@om.uk david.maslen@om.uk
scott.hill@om.uk
kathryn.mansell@om.uk
stephen.martin@om.uk
StephenMartin CorporateTaxPartner
KathrynMansell CorporateFinanceManager
ShonaEustace CorporateFinanceAnalyst
AmIselling forthe rightreasons?
DoIknowifthe businessisreadyfor themarket?
Stop,thinkand discuss. Youonlyget todoitonce! YES
DoIknowthevalue will meetmy expectation and whowill buyit?
Haveyoudone everythingpossible tomaximise value, andrunahasslefree sale process?
AmIbuyingforthe rightreasons?
Itis easytoassume an acquisition will automatically ‘add value’ but sadly this isn’t always true.
Isthebusiness readytoacquire?
It’s anewandbig workload,areyou sureitwon’tbreak whatyoualready have?
Haveyougota trustworthyvaluation andareyouawareof all thebestpossible buyers?
DoIknowhowIwill fundthe transaction?
Havingsecureand fit forpurpose fundingisvital.
