So what can we expect in terms of mergers and acquisitions in the dairy sector in 2021?
Mark Lynch, partner at Oghma Partners, a corporate finance advisory firm specializing in the food and beverage sectors operating across the EMEA region, told DairyReporter the outlook for the dairy industry M&A in 2021 hinged, to a large extent, on whether a Brexit deal would be signed or not.
“The implications of a no-deal scenario, with the significant tariffs that would have implied, could have had profound implications for the UK cheese industry, particularly for those businesses that imported block cheese, and other dairy products, into the UK and further processed them here. The implications of a no-deal scenario would have made these businesses potentially unviable,” Lynch said.
With the certainty that the Brexit deal brings, Lynch noted, we would expect that the general M&A trends that apply to the food sector will apply to the dairy industry too.
“We would therefore expect that current deals being worked on now will try to be completed by the beginning of March to avoid the impact of potential changes in capital gains tax which could detrimentally impact the net receipts being paid to sellers.
“We also think that dairy deals that cover businesses supplying the food service industry will be limited (except in the case of distressed sales). The effect of the lockdowns on the hospitality industry has impacted the earnings stream of the dairy food service suppliers and unless a sale is necessary most owners will want to see a return to more normal trading patterns before looking to exit.”
Looking at retail-focused dairy product businesses, Lynch said the trends of consolidation are likely to continue with the one-off larger deal, as seen in 2019 with the acquisition of Dairy Crest by Saputo, but more likely bolt-on or consolidation plays will be the order of the day.
“Given that approximately half of food is consumed outside the home in the UK, the described stalling in sales processes will reduce the overall level of M&A activity, when compared with historic trend levels therefore we would expect a lower level of M&A activity in the dairy industry and food industry overall, versus trend in 2021. Specifically compared to 2020, we may seem some recovery simply on the basis of easier comparisons – but as stated the recovery will probably be to below pre-Covid trend levels,” Lynch concluded.