Surge in M&A activity amid challenges: UK plant-based companies face struggles

Oghma Partners‘ latest report into M&A activity highlights a continued surge in the UK food and beverage sector with the total deal volume increasing in 2023 to 116 deals compared to 74 deals in the prior year (up by 57.0%).

Total deal value also increased with an estimated c. 20.0% value increase in 2023 at c. £2,100m compared to £1,700m in the prior year.

Oghma believes that the key issues that impacted M&A in 2022 dragged over into the start of 2023 with inflationary cost pressures, the cost of living crisis and the increased cost of debt suppressing the higher value deals in the first half of the year.

Deal volume increased compared to 2022, 116 deals for 2023 (an increase of 57.0%). The firm believes that this increase in activity in part reflected pent up seller activity and, in addition, the sad bonus of a large numbers of businesses acquired out of administration (c. 10.0%).

UK plant-based companies struggled in 2023, with three notable businesses being acquired out of administration.

In June, Vegan Food Group (formerly known as VFC) acquired Meatless Farm, in July Vbites acquired Plant and Bean, and in December it was announced Vbites had gone into administration. It hasn’t just been the smaller players struggling, in August Beyond Meat sales had fallen by almost a third over the previous three months, Heck announced in May it was slashing its range of meat-free products from ten to two, Pret a Manger has closed half of its vegetarian and vegan only outlets, Nestle axed its Garden Gourmet plant-based vegan brand in the UK and LoveSeitan collapsed in August.

The meat free industry has faced a triple whammy – a cost of living crisis turning consumers away from higher cost meat-free products, cost inflation and much reduced investor appetite to provide follow-on funding.

Further highlights include:

  • Overseas buyers were responsible for 23.3% of deal volume in 2023, which is slightly down from 27.4% of deal volume in 2022, and the historic 5-year average of 29.0%. Financial buyers accounted for 19.0% of the deal volume in 2023, up from 13.7% in 2022 and higher than the five-year average of c. 17.0%.
  • Beverages was the most active category for 2023, with c. 80.0% of beverage deals having an estimated value below £10.0m, with a large number of small beer producers make up the volume of beverage deals. c. 25.0% of deals acquired out of administration were beer producers, following an oversaturated market and an intense period of cost inflation.

Mark Lynch, Partner at Oghma Partners, suspects that the meat free shake out will continue this year. However, fewer players with greater scale should be able to provide a focused marketing effort to help re-engage the consumer and retailers.

“The long-term factors that drove excitement in the sector in the first place are unlikely to go away, those businesses and brands that survive this shakeout will emerge the winners over the longer term in our view,” Lynch noted.

The second half of 2023 experienced abating inflationary pressures which led to market opportunities for some of the larger players. Some key notable deals include the acquisition of Finsbury Food Group by DBAY Advisors (EV: £143.4m), the acquisition of Hotel Chocolat by Mars (EV: £534.0m), and the acquisition of Fuerst Day Lawson by Archer-Daniels-Midlands (EV: Undisclosed).

Lynch added: “Looking into the rest of the year we would be surprised if deal volume changes much. However, we do expect to see a pick up in deal value. Financing terms have stabilised or are easing and valuation expectations have become more modest. The combination of these two aforementioned factors combined with an easing input cost environment should provide a more palatable cocktail for success in 2024.”

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