There were, despite continued economic uncertainty in many Western markets and concerns over slowing growth in the East, signs that M&A activity rebounded in the food sector this year.

Data for the whole of 2012 has not yet been published but, at least in some markets, there were indications that more companies were looking to do deals.

According to European M&A advisors Oghma Partners, the level of transactions in the UK food and drink sector in the first eight months of the year was at its highest level since 2007, before the financial crisis.

just-food’s M&A pages were kept busy this year. In the UK, United Biscuits sold its salty snacks business to Germany’s Intersnackx (one of three German acquisitions in the UK in 2012, with Robert Wiseman Dairies sold to Muller and confectionery supplier Zetar bought by Zertus). Another UK dairy business, Milk Link, merged with dairy giant Arla Foods. Premier Foods plc’s reshaping of its business led to a number of transactions, most notably the acquisition by US firm Hain Celestial of brands including Hartley’s and Sun-Pat. And China’s Bright Food bought a majority stake in Weetabix, one of the year’s more intriguing deals.

In Europe, we saw Norwegian conglomerate Orkla, keen to move away from more cyclical industries and bolster its consumer goods assets, acquired local rival Rieber & Son. In December, we saw more consolidation driven in the Nordics with fish farmer Marine Harvest moving to buy value-added salmon processor Morpol. Elsewhere. A European company, Belgian frozen food group PinguinLutosa, contributed to consolidation in one sector by selling potato brand Lutosa to Canada’s McCain Foods. And Nestle paid a not inconsiderable US$11.5bn for Pfizer’s infant nutrition business.

Over in North America, we of course saw Kellogg buy Pringles, ConAgra Foods boost its presence in the fragmented US private-label sector with a deal to buy Ralcorp Holdings and Canadian dairy group Saputo buy Dean Foods’ Morningstar business. We should not forget the completion of Kraft Foods’ split in two to form North America-focused Kraft Foods Group and global snacks giant Mondelez International, a move that could keep M&A advisors busy in 2013.

There are of course many more deals we could mention. It has been an active year. However, a look at just-food’s M&A coverage this year shows there have been few big-ticket, significant deals. Kellogg buying Pringles and Nestle’s transaction with Pfizer and perhaps ConAgra’s move for Ralcorp were the few true major pieces of M&A activity in 2012 as companies continued to watch the macro-economic environment closely and refrain from signing major deals.

Erin Lash, an analyst at US investment research firm, Morningstar says Kellogg’s acquisition of Pringles “stood out” during 2012. Pringles, she says, will account for 10% of Kellogg’s total sales and triples the cereal giant’s international snack business.

“While it’s still early, we were encouraged that Pringles posted organic sales growth of 10% in North America in the third quarter, which exceeded the firm’s expectations, and we think there is the potential to expand this brand further,” she says. “Under its former owner, it appears Pringles was essentially a neglected orphan, as growth was constrained by a lack of capacity and a sales force that was more concerned with extending the distribution of P&G’s household and personal care offerings rather than a food brand.”

However, looking back on the year, the acquisition of Pringles was one of only a handful of true knock-out deals.

“The emergence of new large M&A transactions has been inhibited by an ongoing lack of confidence amongst CEOs in the current macro and operating environment. This does not mean that a number of the largest food companies are not spending time on analysing transformational deals, but the timing is not right at this point for their execution,” Magnus Scaddan, MD and head of investment bank Houlihan Lokey‘s consumer and retail practice in EMEA, tells just-food. “We have not yet seen the inflection point where sufficient confidence has returned amongst CEOs to aggressively pursue transformational M&A.”

The uncertainty over the macro-economic environment also made it difficult for companies to agree on price. There have been deals stymied after buyers and sellers disagreed on the valuation of the assets on the table.

Houlihan Lokey advises on M&A across a number of industries and, although Scaddan declines to provide exact details, he insists companies have entered into talks but failed to agree on valuations. “This year is notable in terms of the number of pulled M&A processes where buyer and seller views on value were not aligned, particularly where no trade buyer was evident,” he says. “It can work both ways with low values being placed by buyers because of the uncertain environment but also with sellers having price expectations impacted by the valuation environment pre crisis. Also given the lack of new deal flow, a number of private-equity funds are more willing to hold onto their existing assets for longer and try and extract further value from what they have already.”

The food sector has long been an attractive one for private-equity firms, given the relatively stable cash flows and strong brands the industry can possess. While Blackstone and PAI Partners have sold half of United Biscuits and Lion Capital sold Weetabix, private equity has continued to buy. Lion has bought UK firm Cumbrian Seafoods, private-equity firm Endless back the MBO of Vion’s UK pork arm, Montagu Private Equity snapped up Dairy Crest’s French business and Pacific Equity Partners acquired Nestle’s ice cream business in Australia.

However, much of the deal-making has been done by trade players. “Acquisition activity continues to be driven by deals within the industry,” Oghma Partners wrote in its update on UK food and drink M&A after the first eight months of the year. “Financial buyers accounted for only 15% of transactions by deal volume.”

Industry consolidation was, as ever, a factor in the deals that did happen. Look at Arla’s merger with Milk Link, Mizkan’s two acquisitions of Premier brands, ConAgra’s move for Ralcorp, Kellogg’s acqiuisition of Pringles and Nestle’s purchase of the Pfizer infant nutrition business. M&A can provide suppliers with more scale and a broader portfolio when dealing with ever-powerful retailers.

Scaddan agrees but only up to a point. “Retailer pressure is one of many considerations that go into M&A. There are many others such as quality of brands, growth and margin profile, market position, products in line with consumer trends as well as the financial implications. It is a consideration but needs to be assessed alongside other drivers,” he says.

M&A can provide a chance for synergies, which when operating in such tough trading conditions, can be a key factor in looking for deals. Scaddan believes these financial considerations will play a role, driving further consolidation in the sector.

“The ongoing operating challenges as a result of raw material price increases and, in Europe particularly, pressure from the retailers will mean the attractiveness of cost synergies will increase, especially as internal cost cutting exercises become more difficult to achieve following a focus on them for over five years since the financial crisis started in 2007,” he says.

“Many of the easier wins in terms of taking cost out have been accomplished. The next logical option is to consider cost synergies achieved through M&A. The input cost and retailer dynamic are considerations too but the sheer scale of value created by cost synergies in many cases outweighs the softer, less easy to calculate benefits of being in a stronger position with suppliers and retailers.”

2012 has seen more interest from companies in emerging markets in Western businesses. Bright Foods’ acquisition of 60% of Weetabix was the stand-out deal but India Hospitality Corp. bought UK own-label firm Adelie Food Holdings and, in December, Mexican food and drink firm Arca Continental, the number two Coca-Cola bottler in Latin America, boost its snacks business with the acquisition of US firm Wise Foods. M&A watchers have predicted more acquisitions of Western businesses by companies in emerging markets and 2012 proved them right, even if the number of deals is still low.

Scaddan, however, believes this will continue. “This is a trend of particular interest to me. I am convinced that over the next five to ten years we will see substantial inbound investment from China into the consumer goods arena generally. Their strategic objectives are different to Western players – for example, are interested in incumbent management teams, brand marketing know-how, brand transfer to China and a strategic position per se – so it increases the number of targets which are potentially actionable at more attractive valuations,” he says. “We are just at the start of this shift and the sophistication and abilities of China-based acquirors will increase logarithmically over the medium to long term. I would also not rule out the emergence of Brazilian and Indian acquirors into Europe particularly for consumer categories which are international, for example in the ambient grocery, protein space.”

2012, then, was a year in which M&A in the food sector continued and showed signs of increasing. There were, however, few transformational deals as CEOs, looking at the tough trading environment, remained cautious about pricey transactions that would significantly change their business.

“While several firms have been active on the acquisition front this year, including ConAgra, General Mills, Campbell Soup and Kellogg, most of the deals we’ve seen have been smaller bolt-on additions rather than large transformational deals, which is not surprising given the amount of uncertainty that exists in the market,” Lash says.

And looking at the economic landscape in 2013, uncertainty could again hold back major deal-making. However, if companies gain confidence the economic tide is turning, prepare for the number of significant deals to increase.