Geopolitical instability and economic headwinds influenced the UK food and beverage M&A landscape in 2024, impacting valuations and deal flow, according to a report by London-based advisory firm Oghma Partners.
The uncertain economic outlook is expected to continue in 2025, particularly surrounding potential tax increases.
High borrowing costs and the March 2025 fiscal assessment present key challenges that could trigger another wave of pre-emptive business sales, the advisory firm noted.
Companies possessing strong supply chains and access to high-margin markets will remain attractive M&A targets.
Key M&A Drivers
Between January 2022 and to September 2024, larger companies sold off non-core businesses to refocus their brands and product offerings, according to law firm Alvarez & Marsal.
Publicly traded companies were being acquired by strategic and private equity buyers who believed they could increase value through integration and acquisitions. Favourable UK valuations compared to global markets attracted overseas investors.
Private equity invested in both private and public companies, while also actively pursuing 'bolt-on' acquisitions to expand existing portfolio companies, aiming for synergies and growth.
Moreover, strained financial position after the COVID-19 pandemic and inflationary pressures forced some businesses to seek acquisitions to survive, sometimes through restructuring.
Key Sector Trends
Oghma Partners has identified three key emerging areas for M&A deals in the UK food and beverage sector in 2025:
1. Plant-based, Meat-Free Food Market
The plant-based and meat-free food market is becoming highly competitive as consumers are increasingly focusing on health.
Successful companies like Rude Health and The Tofoo Co. are maintaining growth by focusing on higher nutritional value, a strong brand identity, continuous innovation in taste, texture, and product variety, and building consumer trust through transparent sourcing, clear labelling, and consistent quality.
However, other brands, such as Allplants and VBites, are struggling. Well-managed companies with sustainable business models are likely to continue to attract investment, while those struggling may be forced to merge or exit the market.
The Plant-based Food Alliance UK (PBFA) has urged the UK's Labour government to prioritise plant-based foods and address the overconsumption of meat and dairy in its upcoming National Food Strategy, planned for the first-half of 2025.
The PBFA has also proposed support for farmers through subsidies, incentives, knowledge sharing, and infrastructure development.
2. Food Ingredients
The food ingredients industry is still a prime M&A target because it serves a variety of markets, has loyal customers, and generates good profits, according to Oghma Partners.
While major players are waiting for the market to stabilise, expected in 2025, smaller deals are happening, such as Arla's purchase of Volac, Turpaz's acquisition of Flavours and Essences, Solina's acquisition of Rich Sauces, and Ingå's deal for MSK Ingredients.
Rising commodity prices and sustainability concerns are pushing food companies to explore alternatives to traditional ingredients.
Celleste Bio has developed lab-grown cocoa, while Tate & Lyle and BioHarvest Sciences have partnered to create alternative sweeteners.
Companies like Fazer and Cargill are also experimenting with cocoa-free 'chocolate' and other sustainable ingredient swaps, according to The Financial Times.
However, challenges include navigating regulatory hurdles (especially in the EU), achieving cost parity with traditional ingredients, and convincing consumers that the taste and texture of these alternatives are comparable to the originals.
3. Pet Food
The pet food industry is another sector with potential for further consolidation in 2025. Pet owners are increasingly demanding natural, organic, and high-quality ingredients.
Recent successful private equity exits, such as Inflexion's sale of Lintbells to Vetnique Labs and CapVest's acquisition of Butcher's Pet Care by Inspired Pet Nutrition, and The Nutriment Company's purchase of Pet Treats Wholesale, demonstrate the sector's potential.
In July 2024, the UK pioneered the sale of lab-grown pet food in Europe, with Meatly's cultivated chicken leading the way. This product, created by growing chicken cells from an egg in a laboratory, offers a potential solution to the environmental burden of conventional pet food production.
Meatly produces its pâté-like food by feeding chicken cells nutrients and growing them in a fermentation-like environment.
Digitalisation And E-Commerce
The UK food and drink sector has benefited significantly from digitalisation and e-commerce growth. Many companies are acquiring direct-to-consumer businesses to leverage new sales channels.
Subscription services and meal prep delivery services like HelloFresh and Beer52 have seen substantial growth. Recent deals include Samworth Brothers' acquisition of premium food-to-go business The Real Wrap Company, and Waitrose's purchase of online meal kit retailer Dishpatch.
This trend, according to law firm Thomson Snell & Passmore, suggests larger companies will likely continue acquiring smaller, tech-driven start-ups to improve their supply chains and expand their customer base.
