June 20, 2023
As 2023 unfolds, the market landscape presents compelling reasons for businesses in the beverage sector to explore new opportunities. This article aims to provide an update on the UK M&A beverage sector by looking at recent developments, exploring key trends and the predictions for the remainder of the year, as well as highlighting why now might be an opportune time to sell for industry players.
The UK beverage sector continues to demonstrate resilience and adaptability, overcoming challenges that stem from the pandemic and regulatory changes. Energy prices have also caused some instability in the sector, with the May 2023 Business insights and impact on the UK economy (BICS) survey highlighting that energy prices have affected production and/or suppliers for more than a third (34%) of businesses. Breweries in particular have been hit by a number of key price increases over the past few years, the main ones being hops and barely. This is due to issues with importing (both Brexit and shipping costs), along with Ukraine being one of the largest producers of barely globally has meant significant price increases. While the large brewers have been able to swallow some of these costs or pass them onto customers, smaller brewers have struggled due to a lack of power with retailers and large pub groups, which in turn is causing some to drop out of the market.
The excessive consumption and improper disposal of plastic have also emerged as significant obstacles for the beverage sector, as they strive to adopt more environmentally friendly business practices. In response to consumer preferences, which now favour companies that actively reduce single-use plastic, the beverage industry is facing the need to adapt accordingly. We predict to witness a significant shift in the beverage industry as consumers actively seek out brands that align with their core values. The emphasis will be on brands that not only listen to their customers but also understand and respond to their needs. To win over consumers, brands will need to prioritise quality, trust, and confidence in their product formulations, as well as in their communications. Moreover, consumers will place increasing importance on sustainability, expecting brands to demonstrate their commitment through actions that contribute to a more sustainable future. This redefinition of value will play a pivotal role in shaping the industry in the coming year.
M&A Activity Update
Recent months have witnessed a flurry of M&A activity in the UK beverage sector. Notable transactions have included strategic acquisitions, brand expansions, and partnerships aimed at capitalising on evolving consumer preferences and increasing market share. These transactions have been driven by various factors, including market consolidation, diversification strategies, and the pursuit of synergies to enhance competitiveness.
A few notable drinks deals include:
Predictions for the rest of 2023 and onwards
Looking ahead, several trends and factors are expected to shape M&A activity in the UK beverage sector, such as:
Strategic Partnerships: To meet evolving consumer demands, companies in the beverage sector are likely to seek strategic partnerships to combine expertise, resources, and distribution networks. Collaborations between alcoholic and non-alcoholic beverage producers, as well as between established and emerging brands, can create synergies and unlock new growth opportunities.
Sustainability: Increasing consumer emphasis on sustainability and wellness is prompting businesses to explore innovative and eco-friendly solutions. Companies that demonstrate a commitment to sustainability and offer unique product offerings aligned with changing consumer preferences are likely to attract significant interest from potential buyers.
Innovation and Adaptability: One sub-sector in the beverage industry having to adapt and innovate as a result of climate change is the wine industry. As the world moves to more sustainable thinking, we are sure to see transformation, as traditional wine-producing regions start growing more resilient varieties of grapes and more countries join the global industry. This could shift growing regions to ‘colder’ climates, which could make the UK a key wine producer in the future. It is also affecting the speed at which grapes ripen, which in turn has an effect on taste. Hence, there is likely going to be significant interest in UK-based vineyards moving forward.
International Expansion: The global appeal of British beverage brands presents an opportunity for companies to expand their presence beyond national boundaries. Investors seeking to enter or expand their foothold in the UK market are expected to pursue acquisitions of established British brands, enabling them to leverage existing market reputation and distribution networks. A new wave of cultural challengers has emerged, disrupting the market with their locally produced products deeply rooted in their cultural heritage. These challengers are prompting established brands to re-evaluate their Eurocentric approach to heritage, acknowledging the importance of embracing diverse cultural influences. Simultaneously, the ready-to-drink (RTD) and no- and low-alcohol sectors are experiencing substantial growth. These markets cater to the preferences of younger generations who seek to moderate their alcohol consumption, aligning with their health-conscious and mindful lifestyles.
Regulatory Changes: Keeping a close eye on regulatory developments is crucial for companies operating in the beverage sector. Anticipated regulatory changes, such as those related to health warnings, labelling, and advertising, could impact industry dynamics. Businesses that proactively adapt to regulatory shifts or possess a competitive advantage in complying with emerging regulations may attract favourable acquisition offers.
Why now might be an opportune time to sell
Considering the prevailing market dynamics and predictions for the sector, selling a beverage business at this juncture offers compelling advantages:
Competitive Market: Heightened M&A activity underscores the interest and appetite among investors and industry players, leading to increased competition for quality assets. This competitive environment can drive up valuations and provide sellers with favourable negotiation leverage.
Access to Capital: Investors are actively seeking opportunities in the beverage sector, backed by ample capital reserves. Sellers can benefit from this influx of capital, ensuring favourable deal structures and facilitating growth for the acquiring entities.
Strategic Fit: As businesses seek to expand their portfolios and diversify their product offerings, companies in the beverage sector that possess unique capabilities, innovative products, or complementary distribution networks are likely to attract significant interest. Sellers can leverage their competitive advantages to negotiate favourable terms and maximise value.
To Conclude
The UK beverage sector is experiencing a dynamic M&A landscape, presenting an opportune time for businesses to consider selling. With robust consumer demand, evolving market trends, and an influx of capital, sellers in the drinks sector can capitalise on the current favourable conditions to achieve optimal value and facilitate future growth. If you’re interested in exploring your options, get in touch with us today at info@blueboxcfg.com.