BiteRecent activity in the food and beverage sector SizeJuly 2012Welcome to the first edition of ‘Bite Size’ our quarterly Trefor Griffith Head of Food and Beverageoverview of M&A activity in the food and beverage sector. T +44 (0)20 7728 2537 E firstname.lastname@example.orgThis quarter has been a busy one for us, completing a number of dealsin the sector including the acquisition of Adelie Foods by IndianHospitality Corp (IHC), the MBO and delisting of Lees Foodsand the acquisition of Cranberry Foods by Faccenda. Alongside our analysis of M&A activity ourTax team has also provided some useful insight regardingR&D support. We hope you find this newsletter useful. If you have anyfurther questions or queries or would like to know howGrant Thornton can help you and your business pleasedo not hesitate to contact us. Increased support for R&D activity Support for SME companies (for the purposes of R&D give rise to technological uncertainty’? relief a SME may have up to 500 employees) who carry In addition, the Treasury, recently confirmed a major out R&D increased from 1 April 2012 with the rate of overhaul to the way in which relief is provided to large relief moving from 200% to 225%. This equates to companies. From April 2013 an ‘above the line’ tax credit valuable tax savings of up to 30% of qualifying spend calculated as a flat percentage of qualifying spend will and should therefore be on the radar of company be either offset against a company’s tax liability or given finance directors. Furthermore, loss making companies by HMRC as a cash payment. This is welcome news for may surrender losses to HMRC in return for cash loss making large companies who have, until now, only payments of around 25% of qualifying spend which can been able to carry forward enhanced losses without any be important to cash flows. immediate benefit. Further details will be published in the This makes the relief even more valuable to businesses Autumn, please get in touch if you would like to discuss in the food and beverage industry and companies should this with us. be reviewing their activities to make sure they are Grant Thornton have specialists familiar with assisting maximising their claims. An example of R&D activity companies in the food and beverage sector where could be developing a product to optimise the shelf life opportunities to claim can frequently be overlooked. For while still retaining the texture and taste associated with further information please contact Samantha Vanags, Tax the product. The key question to ask is ‘does the work Partner, at email@example.com
M&A activity - H1 2012 Announced M&A activity in food and beverage - annually A strong up-tick in M&A 180 Number of deals Value of deals (£ million) 18,000 160 16,000 Deal values and volumes have rallied this year after 140 a stagnant 2011. At the end of the first half of this Value of deals (£ million) 14,000Number of deals 120 12,000 year deal values are down only 9% on the full year 100 10,000 value for 2011. In addition to this, if you discount 80 8,000 the 2010 mega deal; Kraft’s acquisition of Cadbury 60 6,000 for £11.9 billion, 2012 half year values are up on 40 4,000 those for the full year of 2010 by 2% . 20 2,000 Deal volumes also remain robust with 26% 0 0 more deals having taken place in the first half of 2007 2008 2009 2010 2011 2012 (H1) this year compared to the first half of 2011. NB: the spike in 2010 deal values is attributable to the Q1 acquisition of Cadbury by Kraft for £11.9 billion A resurgence in private equity activity The second quarter of 2012 saw six private equity Announced PE activity in food and beverage - quarterly analysis deals take place totalling £416 million in disclosed 8 Number of deals deal value. That represents double the volume of the first quarter of 2012 and three times the 7 number of deals that took place in the second 6 quarter of 2011.Number of deals 5 Indeed two of the six deals that took place in the second quarter of 2012 were confirmed in the 4 final week of June. BlueGem Capital announced 3 the acquisition of Entoria, a wine wholesaler, from 2 ISIS Private Equity and Montagu Private Equity disclosed that it had made a binding offer for 1 Dairy Crest’s St Hubert spreads business for 0 e430 million. This is an interesting dynamic and Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 consistent with the findings of our report, ‘Where is the smart money going in food and beverage?’ published in May of this year. Despite the good news an air of caution remains “Whilst 2012 has got off to a good start with strong M&A Whilst 2012 has been a successful year to date for activity and a healthy upsurge in deal values, trading M&A activity in food and beverage, it has also conditions remain tough. seen a number of business failures . Indeed, Bank credit remains hard to come by, supermarket 2012 saw 13% more failures than the whole of buying patterns reflect the difficulties that these once 2011 with the first quarter of 2012 witnessing unshakable corporates currently find themselves in and levels of business failures not seen since 2009. fuel costs are necessitating manufacturers to consider The majority of these businesses were bakery, rationalising their supply chains. dairy or meat, fish and poultry providers. This Companies that are finding success are those that reflects the difficulties producers are encountering continue to innovate and diversify. It will be these in the face of fluctuating commodity prices, companies that continue to attract the attention of the reduced consumer spend and rises in energy and cash rich private equity community, as has been the case fuel prices. for Purity Soft Drinks (MBI backed by Langholm Capital), One note of reassurance despite the grim and Symington’s (acquired from Bridgepoint Capital by news is that of the total number of business Intermediate Capital).” failures in 2012, 53% went on to be acquired by another business. Trefor Griffith, Head of Food and Beverage
Disclosed deals summary - H1 2012Large deals with disclosed values (>£250m deal value)  Deal value Foreign investment moves Sector Dairy Date Jun-12 Target Dairy Crests St. Hubert Acquirer Montagu Private (£m) 344.00 up a gear spreads business Equity Alcoholic May-12 Ypióca Agroindustrial Diageo 289.90 2012 has seen a number of large scale acquisitions Drinks cachaça manufacturer of UK food and beverage entities by foreign and wholesaler Dry May-12 Weetabix breakfast Bright Food Group 1,200.00 corporates, most notably the acquisition Grocery cereal brand (60% stake) of Adelie Foods by Indian Hospitality Corp Dry Feb-12 Procter & Gambles Kellogg Company 1,796.00 (IHC), Clipper Teas by Wessanen, Premier’s Grocery Pringles brand Haywards and Sarson’s brands by Miskan Group, Dairy Jan-12 Robert Wiseman Dairies Müller Dairy 279.50 Weetabix by Bright Food and Robert WisemanMid market deals with disclosed values (£50m - £250m deal value) by Müller Dairy. Deal value In 2011, 95% of foreign acquirers of UK assets Sector Date Target Acquirer (£m) were based in Western Europe (including the Dry Jun-12 Symingtons dried foods Intermediate Capital 72.00 Grocery manufacturer (49.9% stake) UK), with the rest of the world totalling only Alcoholic Jan-12 Meta Abo Brewery Diageo 145.20 5% of activity. By contrast, the first half of 2012 Drinks Ethiopia witnessed an increase in acquirers from the restSmall deals with disclosed values (<£50m deal value) of the world to 12%. This is clearly signalling an Deal value increased proclivity amongst Asian, American Sector Date Target Acquirer (£m) and Middle Eastern based companies to invest in Dry Jun-12 Premier Foods Mizkan Group Corp 41.00 the UK. Grocery Haywards vinegar and pickles business In many cases these acquisitions have been Deli Jun-12 HC Schau & Son Inc. Greencore 11.10 motivated by opportunities to bolster activity in US based food to go niche, innovative segments, such as Wessanen’s manufacturer acquisition of Clipper Teas which has served to Dry Jun-12 Lees Foods Randotte (No. 555) - 5.60 Grocery confectionery and wafers acquisition vehicle expand its presence in European markets as manufacturer well as reinforce its footprint in the ‘health Dairy Jun-12 Greencores chilled Müller Dairy 4.30 foods’ segment. desserts facility in Minsterley, UK Other acquisitions have been motivated by the Frozen Apr-12 Marketfare Foods US Greencore 22.60 opportunity to acquire strong brands (Miskan’s Foods based frozen foods acquisition of the Haywards and Sarson’s brands manufacturer from Premier). Catering Mar-12 Garrets International GCP Capital Partners 17.00 marine catering Some have been motivated by the opportunity Deli Mar-12 Pooles of Wigan pie Mr Neil Court- 5.00 to consolidate supply chains (Müller’s acquisition manufacturer Johnston of Robert Wiseman) and some to acquire and Meat, Fish Mar-12 Uyeasound Salmon Co Lakeland Unst 3.00 & Poultry salmon farming build on leading UK manufacturing capabilities Alcoholic Jan-12 Turbo Drinks Company "Mr Gareth Williams 7.00 (Bright Food’s acquisition of Weetabix). Drinks Mr Gareth Thomas Whatever the motivation, foreign entities are Mr Sean Smith” increasingly making focused acquisitions in the Functional Jan-12 Savoury Flavours Frutarom Industries 3.77 (Holdings) UK that enable them to consolidate and bolster their offering without large-scale R&DNotes  All deal activity is announced and includes deals where there has been any UK or Irish involvement or NPD capital outlay.(target or acquirer). Administrations, liquidations and receiverships are collated but not counted as M&Aunless they have subsequently been acquired.  Business failure data includes administrations, recieverships and liquidations. For the purposes ofcollating failure statistics, all ‘failures’ are counted irrespective of whether they were subsequently acquired.Only business failures announced in the press are included in the count.  Deal values are primarily sourced from corporate websites, however if no press release is availablethey are sourced from deal database BvD Zephyr or from press commentary released at the time of thedeal. Deal values may subsequently be amended pending earnouts or other finance arrangements and/oras further detail is released by the acquirer.Sources: All deal data is gathered as it takes place from numerous sources including trade press, BvDZephyr and ThomsonReuters.