KBS - Food Manufacturing - Market Insight

MARKET INSIGHT – FOOD MANUFACTURING AND DISTRIBUTION

M&A ACTIVITY CONTINUES TO RISE WITHIN THE FOOD AND BEVERAGE INDUSTRY

The UK food manufacturing and distribution sector is experiencing remarkable growth, with mergers and acquisitions (M&A) activity on the rise. After a steady period following COVID-19, the sector appears poised for exponential growth, driven by evolving market dynamics and consumer preferences that are heavily influencing M&A activity. We have conducted an in-depth analysis of the company sales landscape within this sector, offering valuable insights into the key trends shaping sales activity. A notable trend is the customer-driven demand for more sustainable and environmentally friendly (‘greener’) products and services, which is playing a significant role in shaping acquisition strategies. Our extensive experience in managing successful transactions and ongoing engagement within this dynamic market has provided us with a unique perspective. Below, we present an overview of the current trends shaping the food manufacturing and distribution sector, including the strategic moves of leading acquirers and the vital role of private equity in driving industry consolidation. + BETTER ESG PRACTICES There is a greater need for ESG (environmental, social and governance) practices in the modern business world – and it is not solely customers who believe this. Transparent businesses that minimise their impact on the environment, wider society and workplace culture are becoming increasingly sought after by M&A acquirers and investors alike. + NEW PRODUCT DEMAND In an ever-busy society, convenience and grab-and-go options remain a priority for customers, but healthier, organic options with ‘low and no’ fats and sugars are increasingly in demand, as well as free-from, meat-free and plant-based. Companies manufacturing such products are highly sought after. + THE NEED FOR NEW CUSTOMERS Businesses in the sector are facing challenges to generate new customers. This is mainly due to the cost-of-living crisis, and companies are also deploying cost-cutting measures, including marketing. This has created a need to increase the budget available to such companies, being able to draw in new customers, grow sales figures, and to compete in a challenging market. + SCALING-UP OPERATIONS The status of the UK amongst the wider European community has changed in recent years, following Brexit. The costs of imported ingredients and products has risen, creating a need to scale operations nationally. Investors can not only benefit from this demand, but by steering marketing in a way to sell ‘homegrown’ and ‘Made in Great Britain’ products in a positive manner. Along with enhancing a wider geographic coverage, these ‘green’ and customer-driven motives have created more opportunities for M&A acquirers to put their hats forward in an evolving market. There is a need for those able to deliver greater financial and budgeting capabilities.

CURRENT LANDSCAPE The motives, synergies, and strategic interests of acquirers, investment buyers and private equity in the UK food and beverage manufacturing sector reflect a complex interplay of market dynamics, regulatory requirements and the pressing need for innovation and sustainability. These factors collectively shape the landscape of M&A activity in the sector, driving companies to pursue strategic transactions that enhance their competitive positioning and operational effectiveness. Various players have distinct motives and strategic interests when pursuing mergers and acquisitions.

KEY TRENDS

Several key trends have shaped the UK M&A market in the food manufacturing sector in recent years :

Regulatory Compliance: With increasing regulatory pressures for sustainability and efficiency within the food and beverage sector, companies are seeking targets that can help them meet compliance requirements more effectively. Cost Synergies: Firms are looking to acquisitions for the significant cost savings presented through economies of scale, streamlined operations, and shared resources with synergistic operators, helping to enhance profitability.

Access to Technology: Acquirers are increasingly looking for providers that offer innovative technologies within the manufacturing process.

ACQUISITION SYNERGIES

Operational Synergies: Several manufacturers combining their operations can lead to enhanced efficiency, reduced duplication of resources and improved service delivery.

Financial Synergies: The right acquisition, or sale to, can improve access to capital, optimise the complex cost structures that food manufacturers typically navigate, and enhance financial performance through better cash flow management.

Knowledge and Expertise: Merging with or acquiring manufacturers with specialised expertise can accelerate innovation in a rapidly moving sector and enhance the acquirer’s capabilities in new operational practices.

The UK food manufacturing and distribution sector is witnessing unprecedented growth with a surge in acquisitions, driven by increasing demand for sustainable practices and innovative supply chain solutions.

STRATEGIC INTERESTS OF PRIVATE EQUITY AND INVESTMENT BUYERS

Value Creation: Private equity firms often pursue operational improvements and strategic repositioning of acquired companies to create value before exiting through resale or public listings.

Long-Term Growth Potential: Many investment buyers are focused on sectors with growth potential, and the evolving landscape of consumers’ preferences towards certain products due to dietary, lifestyle and medical necessity, such as meat-free and gluten-free products, provides an opportunity to capitalise on the rapidly growing preference for ‘premium’ products amongst certain consumer groups. ESG Considerations: With the food manufacturing process being a resource heavy one, there is a growing emphasis on environmental, social, and governance criteria among investors, leading to an interest in companies that align with sustainable practices and renewable energy goals. The trends outlined above highlight the evolving landscape of food manufacturing and distribution M&A, characterised by consolidation, sustainability-driven innovation, and increasing private equity interest. investors:

PRIVATE EQUITY CONNECTIONS

We maintain active relationships with many leading private equity houses that either hold or are actively seeking acquisitions in the food manufacturing space, and which also receive funds from institutional investors.

Equistone Partners Europe: Known for investments in mid market companies

Bridgepoint: With a focus on

Archer Daniels Midland Ventures (ADM Ventures): Focused on

KKR: Actively invests in food and beverage sectors, including manufacturers, with a focus on operational improvements and scalability.

Isara Capital: A specialist food sector investor focusing on sustainability.

consumer goods and food industries, this firm has previously invested in food and beverage brands.

innovative food companies with a distribution or manufacturing

across Europe, including food manufacturing.

angle, particularly in sustainable solutions.

Entrepreneurial Equity Partners (e2p): Targets investments in food manufacturing, processing, and distribution, such as Sara Lee Frozen Bakery.

Blackstone Group: Invests in diverse consumer and food-related sectors,

Advent International:

Apax Partners: Focused on high growth consumer brands, including in the food and beverage industry.

Horizon Capital: Targets niche food production and distribution companies in the UK and Europe.

Known for its investments in food and beverage manufacturing with a global approach.

including scalable food distribution chains.

LDC (Lloyds Development Capital): Invests in food and drink businesses across the UK with strong growth potential.

Piper Private Equity: Focuses on fast growing consumer businesses, including

BC Partners: Targets consumer goods, including food manufacturing and distribution, with a focus on driving global growth.

Vitruvian Partners: Interested in innovative and sustainable food and drink companies.

Permira: Active in investing in global consumer food brands and innovative food manufacturers.

food and drink manufacturers.

MOTIVATIONS OF TRADE ACQUIRERS AND CONSOLIDATORS IN FOOD MANUFACTURING AND DISTRIBUTION

+ BROADER PRODUCT AND SERVICE PORTFOLIOS Consolidators are leveraging acquisitions to create comprehensive offerings, spanning the entire food supply chain. Many customers, including retailers and wholesalers, value a “one-stop shop” approach that integrates manufacturing, packaging, and distribution services. + ACCESS TO SPECIALISED EXPERTISE AND TECHNOLOGY Acquired businesses often bring specialised knowledge in areas like sustainable manufacturing practices, advanced food safety technologies, or efficient logistics systems. Trade consolidators use these acquisitions to enhance their capabilities and address high-demand areas within the industry. + RECURRING REVENUE STREAMS The predictability offered by contracts with major retailers or foodservice companies is highly attractive. These steady revenue streams appeal particularly to private equity-backed consolidators seeking reliable returns on investment within a rapidly growing sector. + SUSTAINABILITY AND INNOVATION DEMAND Increasing consumer and regulatory pressure for sustainability has created demand for eco-friendly practices and innovative food solutions. Acquisitions allow consolidators to rapidly adopt new technologies and processes, positioning themselves competitively in the market. + SYNERGIES AND COST EFFICIENCIES Consolidators achieve economies of scale by integrating operational elements such as logistics networks, procurement, and production facilities across multiple acquisitions. This integration reduces costs and improves profitability, making businesses more competitive in a price-sensitive market. In recent years, trade consolidators’ interest in acquiring food manufacturing and distribution companies has been driven by the need to achieve scale, diversify expertise, and strengthen their market position in a highly competitive and continually evolving industry. As consumer demands for sustainable and innovative food solutions grow, businesses are increasingly seeking partners that can deliver integrated manufacturing, packaging, and distribution services. Acquirers view this demand surge as an opportunity to build comprehensive “farm-to-fork” solutions by combining specialised providers. This approach enables them to serve a diverse range of clients, from retailers to foodservice operators, while improving operational efficiencies and leveraging economies of scale. The predictability of recurring revenue from long-term contracts with major retailers and food distributors is another major attraction. This financial stability is especially appealing to private equity-backed consolidators seeking reliable returns. Additionally, acquiring established food manufacturers or distributors allows consolidators to quickly incorporate advanced capabilities, such as automation, sustainable processing technologies, and efficient supply chain solutions, which are crucial for remaining competitive in a fast-evolving sector. Ultimately, these acquisitions enable consolidators to solidify their presence in a lucrative market, drive innovation, and adapt to the shifting preferences and regulatory requirements in the food industry.

This approach enables consolidators to build robust, scalable operations capable of meeting the evolving demands of the food manufacturing and distribution sector.

WHAT TYPES OF BUSINESSES ARE STRATEGIC ACQUIRERS PURSUING?

In the UK food manufacturing and distribution sector, strategic acquirers are targeting companies that can enhance their market presence, diversify offerings, and deliver specialised expertise. Ideal acquisition targets often exhibit niche capabilities, strong customer relationships, impressive growth metrics, and alignment with consumer and regulatory trends in sustainability and innovation.

+ NICHE PROVIDERS AND SPECIALISED EXPERTISE Acquirers seek businesses offering highly specialised products or services that bring unique capabilities to their portfolio. Companies with expertise in areas such as plant-based foods, sustainable packaging, or artisan goods are particularly attractive. + HOLDERS OF PROPRIETARY TECH OR PROCESSES Businesses with proprietary technologies or innovative production methods—such as efficient food waste management systems or exclusive recipes—offer competitive advantages. Intellectual property that enhances production efficiency or product differentiation is highly valued. + STRONG CUSTOMER RETENTION Companies with loyal, long-standing client bases and strong retention rates are prized for their predictable revenue and potential for upselling value-added services, such as premium delivery or customised packaging.

+ HIGH-GROWTH AND HIGH-MARGIN OPERATIONS Firms with a track record of rapid growth, or those operating in high-demand segments such as healthy eating, convenience foods, or premium goods, are prime targets. Strategic buyers value strong revenue growth and healthy profit margins. + SME-FOCUSED DISTRIBUTION NETWORKS Acquirers are drawn to firms with established distribution networks, especially those catering to SMEs, which often require tailored services. These networks can provide recurring revenue streams and opportunities for cross-selling or expanding product lines. + ACCESS TO NEW MARKETS OR RE GIONS Strategic buyers are also targeting firms with a presence in underserved regions or emerging market segments. Companies offering an established foothold in growing regions or demographics, such as younger consumers seeking health-conscious products, are particularly appealing.

By focusing on these types of acquisitions, strategic acquirers in the food manufacturing and distribution industry aim to build robust, future-ready businesses capable of addressing evolving market demands.

In recent years, trade consolidators’ interest in acquiring food manufacturing and distribution companies has been driven by the need to achieve scale, enhance expertise across the supply chain, and strengthen market position in a highly competitive and constantly evolving industry.

SECTOR DEAL ACTIVITY

Bodmin-based food manufacturer Proper Cornish, renowned for its Cornish pasties, was acquired by French quality food producer Boncolac, a frozen sweet and savoury baked products specialist. As a high-performing and dynamic manufacturer of savoury products, Proper Cornish held considerable appeal to Boncolac, whose headquarters is in Toulouse with the Group backed by Waterland Private Equity Investments which operates across Europe. PROPER CORNISH ACQUIRED BY BONCOLAC KBS DEAL Yorkshire-based Regal Food Products Group has acquired Love Cheesecakes. The company produces over 100 varieties of handcrafted cheesecakes for wholesale, food service, and the hospitality sector. LOVE CHEESECAKES ACQUIRED BY REGAL FOOD PRODUCTS GROUP

Scottish cake manufacturer Lees Foods, known for snowballs and teacakes, was acquired by Finsbury Food Group for £5.7m. Lees employs over 200 staff at its Coatbridge site. LEES FOODS ACQUIRED BY FINSBURY FOOD GROUP

Soho Sandwich Company, which distributes over 15 million sandwiches annually across the UK, was acquired by Around Noon. This deal is expected to increase the group’s turnover to £100m. SOHO SANDWICH COMPANY ACQUIRED BY AROUND NOON Highly regarded ice cream wholesaler Gortrush, which serves clients in Ireland and England, was sold to a Norwegian acquirer owned by Orkla, a supplier of branded consumer goods to sectors including grocery, pharmacy and bakery. Gortrush has seen significant growth since its foundation with a strong workforce, high-quality products and an excellent reputation driving success. OVERSEAS ACQUISITION OF GORTRUSH KBS DEAL Café Deli, a food and beverage wholesale company which supplies retailers across London, was sold by KBS Corporate to The Partyman Company, a leisure and entertainment group whose CEO described the acquisition as “a marriage made in heaven” due to the synergies with its existing operations. The vendor of Café Deli posted a five-star Google review saying “KBS has been excellent during the process of selling my business”. CAFÉ DELI ACQUIRED BY THE PARTYMAN KBS DEAL UK-based frozen food supplier Glendale Foods, specializing in frozen snacks and processed meats, has been acquired by investment firm Shallan Group. Based in Salford, Glendale serves UK retailers, the airline industry, and other food manufacturers. GLENDALE FOODS ACQUIRED BY SHALLAN GROUP

Percol, a UK coffee brand, was acquired by CCL Products (India) Ltd (Continental Coffee). London-based Percol’s coffee products were the first to bear the Fairtrade mark in 1994 and have received recognition from the Rainforest Alliance and the Soil Association. Established in 1994, India-based Continental Coffee is an international instant coffee exporter and private-label manufacturer. PERCOL ACQUIRED BY CCL PRODUCTS KBS DEAL Annessa Imports, a long-established supplier of continental food and wine to the hospitality and retail sectors, was sold in a deal advised upon by KBS Corporate. The London-based company imports a diverse range of products with a focus on Italian cuisine to a client base of over 1,000 customers across southern England. ANNESSA IMPORTS ACQUIRED BY KIRIL MISCHEFF GROUP KBS DEAL Americandy, an importer of American snacks and drinks to the UK and European market, was sold to SKG Acquisitions, which invests primarily in chain services, wholesale and distribution, manufacturing and technology. Having experienced considerable growth since its foundation, Americandy was a highly popular opportunity which attracted a large number of interested parties among trade, private equity and investment buyers. AMERICANDY ACQUIRED BY SKG ACQUISITIONS KBS DEAL

PENDING DEALS

Completion expected in January 2025 BREWERY TO BE SOLD TO TRADE ACQUIRER

KBS DEAL

PENDING

FOOD SERVICE COMPANY TO BE SOLD TO TRADE ACQUIRER

KBS DEAL

PENDING

Completion expected in January 2025

KEY ACQUIRERS & INVESTORS

MARKET INSIGHT

As the country’s biggest manufacturing industry, food and beverage production has reached a critical juncture as it comes face-to-face with a host of challenges. Rising energy and raw material prices mean greater costs; labour shortages have been exacerbated by Brexit; sustainability measures have led to different production methods; advancing technology means automation must be embraced; supply chains have encountered disruption; and political changes have sparked corporate tax increases. However, although food production costs surged by 9.2% in the year up to March 2024, there are still significant opportunities for growth to be exploited in a sector that employs nearly 450,000 people in the UK.

Revenue Total value (£) and annual change from 2011 - 2029. Includes 5 - year outlook.

150

12%

Forecasted

120

8%

90

4%

60

0%

30

-4%

0

-8%

2028

2012

2014

2016

2018

2020

2022

2024

2026

SOURCE: IBISWorld

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 are all ensuring that companies which take a proactive approach to the industry will thrive and become attractive acquisition targets. As of September 2024, 507 M&A transactions involving UK targets had taken place in the past three years within the food manufacturing and distribution sector.

The industry is poised for growth driven by the following factors:

+ PLANT-BASED & HEALTHY FOODS Growing appetite for plant-based, organic, and health-oriented products. + EXPORT OPPORTUNITIES High-quality British products expanding into international markets post-Brexit. + CONSUMER-CONVENIENCE FOODS Demand for ready-to-eat, meal kits, and premium convenience foods. + SKILLS SHORTAGES & TALENT GAPS Addressing the lack of skilled workers through training and automation.

+ SUSTAINABILITY DRIVES Increasing demand for eco-friendly production, reduced food waste, and sustainable sourcing. + TECHNOLOGY & AUTOMATION Investments in smart manufacturing and Industry 4.0 technologies to improve efficiency. + SUPPLY CHAIN RESILIENCE Focus on securing robust supply chains in response to global disruptions. + TIGHT MARGINS & COST PRESSURES Heightened need to control input costs and improve operational efficiency. + PRIVATE EQUITY INTEREST Strong investor appetite for established brands and scalable operations.

+ CLEAN LABEL & TRACEABILITY Increased focus on transparency and cleaner ingredient profiles.

These 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.

Over the last year, we have seen multiples as high as 10x for KBS Corporate clients within the food manufacturing and distribution sector. Just short of 3,500 investors and acquirers have registered their interest with KBS Corporate for companies in the food manufacturing and distribution sector.

The food manufacturing sector in the UK is projected to grow by 25% from 2023 to 2027, driven by increased demand for sustainable practices, advancements in automation and smart manufacturing, and a growing market for plant-based and health-conscious products.