Blog: Dean BestDownturn dents M&A activity

Dean Best | 27 March 2009

New data has revealed that global M&A activity plummeted by a third in the first quarter of this year, dropping to its lowest level in three years as the financial crisis frustrated takeovers and the private equity sector was all but silenced.

According to Thomson Reuters data released today (27 March), M&A activity dropped to US$444bn in value, in spite of bank bailouts and two US drug industry tie-ups, together worth about a quarter of the dollar value of all deals.

And it seems likely that these conditions will continue until credit markets thaw, stock markets stabilise and the global economic outlook brightens.

According to a forecast produced by Mark Lynch and Tim Potter of food sector M&A advisory firm Oghma Partners, in the coming year we can expect the number of private equity transactions in the food industry to dry up further.

However, in many respects as economic conditions constrict the rationale underpinning M&As strengthens. As long as it’s the right deal, any merger or acquisition should offer synergies – and cutting costs is obviously imperative in these troubled times. With economic conditions being what they are, if a company has the necessary access to funds, chances are they could be able to negotiate a bargain basement price, while pressure on weaker players to sell off some or all of their businesses is also mounting.

Lynch and Potter suggest that overall transaction levels in the food sector could therefore hold-up as the economic imperative to do deals increases and strategic buyers take advantage of current market conditions. Consolidation could well be on the cards.

Interestingly for UK-based food companies, Lynch and Potter add that the UK food industry could be facing an influx of foreign investment – even to the point where it is “not inconceivable that they could make up to 50% of buyers”.

For more information on the tactics global food manufacturers are employing to ride out the recession check out our analysis of the situation and our top tips on how to weather the downturn.

Katy Humphries, Deputy Editor


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