Industry Insights: UK Food and Beverage M&A Trends and Key Takeaways for Business Owners

The UK food and beverage sector has seen a resurgence in M&A activity, marking a strong recovery following a challenging period. Business owners in this industry should take note of several important trends and opportunities that can help guide their strategic decisions, particularly when considering an exit to a strategic buyer.

1. M&A Recovery Signals Strong Demand

The latest report from Oghma Partners reveals that the UK food and beverage sector experienced a 32.4% increase in deal volume during the second quarter of 2024 compared to the same period in 2023. This recovery is a clear indicator that demand for acquisitions has significantly increased since the 13-year low seen in 2022. The resurgence is largely driven by improving private equity activity and heightened interest in sub-sectors such as alcoholic beverages and confectionery. For business owners, this creates an ideal climate to explore potential exit opportunities.

2. Market Attractiveness Continues to Grow

Economic recovery and increasing consumer confidence are further boosting the sector’s appeal to investors and acquirers. The deal activity in early 2024 reached its highest level since 2016, with the momentum carrying into the second quarter. Certain sub-sectors, such as grocery and confectionery, accounted for nearly a quarter of total M&A activity, highlighting them as particularly attractive to buyers. Business owners in these categories should recognise their strong positioning and act on potential interest from acquirers.

3. Smaller Deals Dominate the Landscape

Smaller transactions continue to represent the bulk of M&A activity: 61.2% of deals were valued at ￡10 million or less. This indicates robust demand for smaller, strategically aligned businesses, making it essential for business owners to ensure their companies are well-prepared for potential acquisitions. By enhancing operational efficiency, refining value propositions, and ensuring financial transparency, businesses can better position themselves for a successful exit.

4. Timing is Critical for Exit Strategies

Business owners should pay close attention to upcoming tax changes, particularly the potential for capital gains tax (CGT) increases. Mark Lynch, a partner at Oghma Partners, advises that a rise in CGT could lead to a surge of deal activity as owners rush to complete exits before higher tax rates take effect. Business owners considering an exit may want to accelerate their plans to take advantage of the current tax environment, as any delay could result in higher premiums and less favourable selling conditions.

5. UK Corporate Buyers Lead the Charge

The UK corporate buyers are responsible for 57.1% of all deals in the second quarter of 2024, reflecting strong domestic interest in the food and beverage sector. With UK buyers continuing to dominate the market, business owners should focus on aligning with strategic corporate acquirers who are actively seeking opportunities for growth. While financial and overseas buyers remain active, targeting domestic players may yield the most immediate results.

6. Future Opportunities: Interest Rate Cuts and a Short-Term Deal Surge

Looking ahead, the potential interest rate cuts by the Bank of England, which could create more opportunities for deal-making, particularly for financial buyers. However, with the possibility of increased capital gains taxes looming, there is likely to be a surge in deal activity before the government’s budget announcement. Business owners should act quickly to capitalise on these short-term conditions while remaining mindful of longer-term risks tied to rising tax rates.

Final Thoughts

The current M&A landscape in the UK food and beverage sector presents significant opportunities for business owners looking to exit. With improving economic conditions, high demand for smaller transactions, and a window of opportunity before potential tax changes, the timing could be ideal for a well-prepared exit. Business owners should focus on understanding their company’s attractiveness, aligning with the right buyers, and acting swiftly to maximise value in the months ahead.

Take advantage of the current market trends by assessing your business's readiness for a strategic exit, and position yourself for a successful deal in this dynamic sector. Complete your business value assessment as part of your Strategy-In-Action Insights to gain a clear understanding of your business’s attractiveness to potential acquirers.