While M&A activity in the UK food and beverage sector remains in decline, the number of deals involving insolvent companies has increased this year, a leading M&A specialist has indicated.
According to Mark Lynch, a founding partner of food and beverage M&A specialists Oghma Partners, some 22 UK M&A deals have been recorded in the year-to-date, down from 33 in the comparable period of last year.
Of these, 27% were acquisitions of insolvent businesses. Last year, only one of the 33 takeovers involved a business that had gone bust.
“Clearly the level of activity related to insolvent businesses reflects the tough trading conditions and, perhaps as importantly, the difficulty of finding funding to keep struggling businesses going,” Lynch suggested.
Given the increased number of bankrupt companies involved in buy-outs, Lynch said it is “no surprise” that their total value this year has been “very modest” at GBP300m. This compares to an estimated GBP450m for the corresponding 2008 period and some GBP2bn for 2008 as a whole, after adjusting for the S&N transactions.
According to Lynch, the number of transactions carried out by financial buyers remained relatively steady at 14%. However, “somewhat to our surprise”, Lynch added that the number of deals involving foreign investment dropped to 18% in the first tertial, down from 38% in the comparable period of last year.
Despite the fall in activity, Lynch revealed that there are, however, some “interesting signs” of increasing activity.
On an anecdotal level, he noted: “After a period of almost a ‘closed shop’ from corporates in the October-January period of 2008/9 as internal issues were tackled – there appears to be renewed interest in M&A with a significant increase in enquiries from corporates noted across parts of the industry.”