Mergers and acquisitions (M&As) of UK companies featuring overseas buyers increased by a whopping 71% in the first quarter of 2014, compared with the same quarter in 2013, according to Trefor Griffith, partner at financial advisory firm Grant Thornton.
At the same time, new figures from Catalyst Corporate Finance for the first half of 2014 have shown there were a total of 23 food and drink company M&As, worth more than £600M, compared with 17 for the same period last year.
Much of this involved large corporations buying niche food and drink businesses with strong brands and new product development (NPD) pipelines, said Griffith.
Companies now recognised the merits of acquiring small food and drink businesses with a record of successful NPD, he said. This offered quick returns, bypassing the need for lengthy NPD and product evaluation, he added.
“This is the crux for many acquirers,” said Griffith. “Large corporations are keen to acquire small businesses to jump-start and diversify their product offering. Investors are increasingly aware that they can use small innovative brands to yield strong returns on their investments.”
Fierce competition was emerging between private equity and trade buyers and foreign investors looking to ramp up their presence in the UK, he added.
Target of overseas buyers
British food brands with a global appeal would be a target of overseas buyers, said Simon Peacock, corporate finance director at Catalyst. The £217M buyout of the UK’s biggest rice brand Tilda – which had fewer than 250 employees – by US company Hain Celestial in January was a prime example, he added. Crisp brand Tyrrells, which was sold for £100M to the US investment company Investcorp in the last half of 2013, was another.
“British brands are trusted internationally and heritage and independent brands, like Tilda, have a successful record in developing new products and have the potential for significant international growth,” said Peacock.
Global firms with enterprise values often exceeding £1bn were increasingly targeting companies with enterprise values often less than £200M, he added.