Businesses in the food and drink sector can “outgrow inflation through expansion or acquisition”, according to a new in-depth finance report.
The findings, which were collated by specialist corporate finance advisory firm Shaw & Co, were gathered from the second annual in-depth report into the food and drink sector, as a way to offer business leaders a benchmarking tool to aid decision-making.
According to the report, the food and drink sector remains “highly concentrated, with just 7% of the 1,905 companies analysed accounting for 76% of turnover”. But outlined how “with larger firms’ sales declining, the data shows how effective smaller businesses have been at competing with the giants, with many seeing their sales rise” and advised entrepreneurs that “achieving scale” was key to opening up “options to borrow, grow and win market share”.
In terms of borrowing, the report made clear that for food and drinks businesses “it is demonstrably easier to borrow higher multiples of debt once EBITDA hits £5m” and highlighted that “as with many sectors, larger more established businesses are offered more lender support which opens more options for further growth”.
Looking at mergers and acquisitions, the report revealed: “91 M&A deals were delivered during the past 12 months, of which 77% were completed by UK buyers. The relatively high number of deals reflects how important it is to achieve scale in the sector, while the dominance of UK buyers suggests market knowledge is an advantage when looking to scale up quickly. Perhaps unsurprisingly, deal numbers have actually fallen since the Russian invasion of Ukraine”.
Making a few post-pandemic predictions, the report also unveiled how the sector has recovered well from the pandemic but is “facing supply chain interruption and acute food and energy commodity inflation issues” which it added were not yet reflected in the reported performance numbers. However, it stated how “with good performance, the industry is well positioned to outgrow inflation through organic expansion or by acquisition, if entrepreneurs can recognise opportunities in the midst of uncertainty”.
Alexei Garan, director, head of debt advisory at Shaw & Co and editor of the report, said: “We are delighted to have launched this, our second annual, in-depth Food & Drink sector report. We hope it will help SME business owners benchmark their own and their peers’ performance in the sector and aid their decision-making processes. Our aim is to provide small business leaders with free access to the same market intelligence as larger blue-chip corporates, who benefit from investment banking advisors. The report will also provide SMEs with valuable insight in terms of their relative creditworthiness and attractiveness from an M&A point of view.”
This article was originally published by the drinks business and has been shared with permission.