Flush food industry ideal for acquisitions
the industry is awash with cash following many stable years, say UK
analysts.
Plimsoll Publishing released its Acquisition Study this week, which looked at the finances 500 food manufacturing companies in the UK, and ascertained the current climate is opening doors to acquisitions within the industry. These opportunities could lead to the industry becoming saturated with the more successful, larger companies, forcing small- and medium-sized food manufacturers out of the market. "There is absolute evidence that the rich are getting richer as the gap between those making massive profits and those missing out has widened in the last few years," said David Pattison, senior acquisition analyst. "There has never been a better time for these dynamic companies to splash the cash." Food industry prospers Plimsoll said that while the credit market is affecting the performance of most other UK companies and slowing acquisition activity, there is no shortage of money in the food industry. It said the industry has avoided any ill-effects because food is a necessary commodity. Pattison told FoodNavigator.com: "The stable years have allowed many companies to build up cash reserves with the result that many UK food manufacturers are self-financing." The report claims there is a group of 210 companies that have built up a stock resource of cash over the past few years, placing them in a strong position. These companies will be the driving force in going on the offensive and buying up the competition. Out of these, there are 134 companies in the market that would make good strategic acquisitions, according to the report. Pattison said: "Having resources to buy one of these 134 powerful players is the perfect situation. In doing so, you take a strong adversary to your own company out of the market immediately, and it will instantly be generating profitability." However, in doing so, the analysts said there will be "casualties". These will show themselves in the following 12 to 24 months, as the larger companies will dominate the market and shove others out. Profile of acquisitions Plimsoll's report finds that the profile of acquisitions needs to change to reap the most benefits from the business move. Pattison said: "For years, acquisition activity in the food manufacturing industry has been driven by distressed fire sales. Acquirers have been reluctant to invest heavily, instead they have been content to snap up bargain basement companies often getting bad deals, paying peanuts and getting monkeys. "This attitude needs to change. What are report suggests is that companies need to look at the wider strategic picture and spend their money wisely."
