Market insight: Food and beverage manufacturing

By Jon Wilde

A surge of exponential growth is in store for the UK food and beverage manufacturing industry, driven by evolving market dynamics and consumer preferences that are heavily influencing M&A activity.

Inevitably, the Covid-19 pandemic brought a steadier period due to lockdowns and social distancing restrictions, with a reduced demand for food and beverage products enforced upon consumers by the closure of hospitality premises which greatly impacted the supply chain.

However, since the return to normal lifestyles, an impressive recovery has been staged, and the resilience demonstrated by the companies that withstood those challenges is a significant value driver among the strengths that would appeal to potential acquirers.

Food and beverage is the UK’s biggest manufacturing industry and there are distinct opportunities for growth to be exploited in a sector that employs nearly 450,000 people nationally.

It is also a sector in which KBS Corporate has overseen the sales of numerous companies. As of autumn 2024, 507 M&A transactions involving UK targets had taken place in the past three years within the food manufacturing and distribution sector, with transactions managed by KBS contributing significantly to that total.

These include the sales of food and wine importer Annessa, wholesale distributor Café Deli, coffee brand Percol and pasty maker Proper Cornish. Quite simply, they sold like hot cakes.

A notable trend is the customer-driven demand for more sustainable and ‘greener’ products and services, which is playing a significant role in shaping acquisition strategies.

Key focus areas

The following ‘green’ and customer-driven motivations have created more opportunities for M&A acquirers to come forward in an evolving market, while there is a need for those able to deliver greater financial and budgeting capabilities.

Better ESG Practices: Transparent businesses that minimise their impact on the environment, wider society and workplace culture are becoming increasingly sought after.
New Product Demand: Healthier, organic options with ‘low and no’ fats and sugars are increasingly in demand, as well as free-from, meat-free and plant-based products.
Need For New Customers: Mainly due to the cost-of-living crisis, companies are deploying cost-cutting measures including within marketing – but must still compete in a challenging market.
Scaling-Up Operations: Following Brexit, the costs of imported ingredients and products has risen, creating a need to scale operations nationally.

Key acquisition trends

Over the last year, we have seen multiples as high as 10x for KBS Corporate clients within the food manufacturing and distribution industry. More than 3,000 investors and acquirers have registered their interest with KBS Corporate for companies in this sector, which clearly indicates the attraction of suitable businesses is extremely high. The key acquisition trends are:

Regulatory Compliance: Companies are seeking targets that can help them meet compliance requirements more effectively.
Cost Synergies: Acquisitions are being sought by companies for significant cost savings, helping to enhance profitability.
Access to Technology: Acquirers are increasingly looking for providers that offer innovation within the manufacturing process.
Acquisition Synergies: Operational and financial synergies generate a range of benefits, not merely greater knowledge and expertise.
Private Equity and Investors: Strategic investments have increased, leading to greater value creation, long-term growth potential and ESG considerations.

Motivations of acquirers

As consumer demands for sustainable and innovative food solutions grow, companies are increasingly seeking partners that can deliver integrated manufacturing, packaging and distribution services. This approach enables them to serve a diverse range of clients.

The predictability of recurring revenue from long-term contracts with major retailers and food distributors is another major attraction among the following motivations:

Broader product and services portfolios: Consolidators are leveraging acquisitions to create comprehensive offerings. Customers value a ‘one-stop shop’ approach that integrates manufacturing, packaging and distribution services.

Access to specialised expertise and technology: Trade consolidators enhance their capabilities and address high-demand areas for sustainable manufacturing practices, advanced food safety technologies or efficient logistics systems.

Recurring revenue streams: Steady revenue streams appeal particularly to private equity-backed consolidators seeking reliable returns on investment within a rapidly growing sector.

Sustainability and innovation demand: Acquisitions allow consolidators to rapidly adopt new technologies and processes, positioning themselves competitively in the market.

Synergies and cost efficiencies: Integrating logistics networks, procurement and production facilities across multiple acquisitions reduces costs and improves profitability, making businesses more competitive in a price-sensitive market.

What types of companies are strategic acquirers pursuing?

Companies that take a proactive approach to the industry will thrive and become attractive acquisition targets, specifically those which embrace the growing consumer demand for sustainable and ethically produced food; technological developments from robotics and AI; new trade deals for exportation outside the EU; and rising interest from investors within the sector. All of which complements the following criteria:

Niche providers and specialised expertise: Companies with expertise in areas such as plant-based foods, sustainable packaging or artisan goods are particularly attractive.
High-growth and high-margin operations: Prime targets include those within healthy eating, convenience foods or premium goods.
Holders of proprietary tech or processes: Competitive advantages can be gained through efficient food waste management systems or exclusive recipes.
SME-focused distribution networks: Acquirers are drawn to such firms as they can provide recurring revenue streams and opportunities for cross-selling or expanding product lines.
Strong customer retention: This provides the potential for upselling value-added services, such as premium delivery or customised packaging.
Access to new markets and regions: Younger consumers seeking health-conscious products are particularly appealing at present.

What does the future hold for the sector?

The following trends not only reflect changing consumer priorities but also highlight areas where M&A activity and investment are likely to grow, positioning the sector for dynamic development in the coming years:

Sustainability drives: Increasing demand for eco-friendly production, reduced food waste and sustainable sourcing.
Plant-based and healthy foods: Growing appetite for plant-based, organic and health-oriented products.
Technology and automation: Investments in smart manufacturing and Industry 4.0 technologies to improve efficiency.
Export opportunities: High-quality British products expanding into international markets post-Brexit.
Supply chain resilience: A focus on securing robust supply chains in response to global disruptions.
Consumer convenience foods: Demand for ready-to-eat, meal kits and premium convenience foods.
Tight margins and cost pressures: Heightened need to control input costs and improve operational efficiency.
Skills shortages and talent gaps: Addressing the lack of skilled workers through training and automation.
Private equity interest: Strong investor appetite for established brands and scalable operations.
Clean label and traceability: Increased focus on transparency and cleaner ingredient profiles.

In summary

In providing the sustenance which is one of life’s essential requirements, food and beverage companies will always be in strong demand from acquirers – and especially those that take a forward-thinking, sustainable approach to evolving consumer demands.

Excuse the pun, but such companies will not be left on the shelf for long.

If you would like to find out more about the M&A landscape in the food manufacturing sector, especially in relation to recent deals within the industry, take a look through our white paper.