More food, beverage mergers expected

More food, beverage mergers expected

SERVICES NEWS

Business Day - Jul 24th 2012, 09:09

Grant Thornton said yesterday it was positive about increased merger and acquisition (M&A) activity in the food and beverage sector, as conditions seem ripe for investors looking to expand. 

"Much like global giant Walmart showing interest in SA’s Massmart , we’re expecting more activity of this nature in the next few years," said Steven Kilfoil, finance director at the professional services firm Grant Thornton in Johannesburg.

According to the company’s International Business Report on the food and beverage sector, 20% of businesses in this sector globally are investigating M&A opportunities.

Locally, the food and beverage sector has proved to be very resilient and defensive in the recent turbulent economic period, as consumers continued to support this sector, both in the value and upmarket categories.

"The F&B (food and beverage) sector provides great opportunity for consolidation and the African continent is brimming with possibilities for those looking at new growth avenues," Grant Thornton said.

According to the African Development Bank, in 2060 there will be 1,1-billion Africans in the middle class — the growth that consumer goods companies are hoping to tap into.

US-listed Kraft Foods last year said it would spend $150m on manufacturing in Africa over three years as it uses its Cadbury brand to expand into emerging markets.

In Africa, drinks giant Diageo has seen annual sales rise 15% over the last five years. And the London-listed maker of Johnnie Walker whisky expects growth in its biggest emerging market region to accelerate beyond this figure.

Meanwhile, the world’s biggest food company Nestlé will invest $1,4bn by 2015 to expand production capacity on the continent.

And it is not only global players that are eyeing Africa, local food producers are expanding north too.

Earlier this month, Tiger Brands reached an agreement in principle with Dangote‚ the West African manufacturing group‚ to buy 63,35% of the Nigerian flour and pasta maker Dangote Flour Mills.

Last year it acquired 51% of the food and consumer interests of the East African Group in Ethiopia and of biscuit manufacturer Deli Foods in Nigeria, and 49% of UAC Foods, also in Nigeria.

Tiger Brands CEO Peter Matlare said the expansion into new markets, primarily in the rest of the African continent, remains a key strategic thrust for the group, both through acquisitions and exports.

According to Grant Thornton’s report on M&A activity released in May, 46% of SA’s businesses looking to expand through acquisitions over the next three years expect to do so through cross border transactions. "Local producers are hoping to vertically integrate their supply chains from grower to final consumer in order to overcome the projected scarcity concerns projected for the future and remain competitive," Grant Thornton said.

According to Mr Kilfoil, a number of South African food and beverage producers are taking advantage of expansion opportunities on the continent to gain market share in other African countries.