The first six months of 2017 have proven to be another active period for mergers and acquisitions in the Irish agri-food sector. Even in the past couple of weeks, JBS announced it was to sell Moy Park, ABP extended its relationship with Linden and Carton Brothers sold Manor Farm to Scandi Standard.

This is on top of acquisitions or mergers completed recently by Glanbia, Dawn Meats, Liffey Meats, Dunbia, Carroll Cuisine, Wilbay and La Rousse Foods to name just a few.

Jan Fitzell, director of IBI Corporate Finance, explains that the recent strength in activity is down to a growing level of confidence among Irish players in the sector. While Brexit is on their agenda, the main driver of activity continues to be the push for scale.

“There are many food companies here generating sales of less than €10m,” says Fitzell. However, he adds that the relative small size of the Irish market acts as a constraint on growth and so there are very few food companies with sales greater than €50m.

He says scale creates a meaningful market presence, which improves bargaining strength with both suppliers and customers. For example, the recently completed sale by Glanbia plc, of 60% of its branded consumer dairy and agribusiness division, Dairy Ireland, to Glanbia co-op is reflective of this trend. He explains that with annual revenues of €1.5bn, Glanbia Ireland will be the largest dairy processor in Ireland with significant brand capability, which will enable it to unlock synergies to maximise opportunities from the growth in milk supply.

He says another major motivating factor behind many M&A deals is to bring cost efficiencies. By combining the assets and resources of both businesses, capacity can be increased allowing it to lower the cost of production, improving competitiveness. For example, he says the purchase of Wilbay Ltd, a Laois-based meat wholesaler, by Monaghan-based sausage producer, Arthur Mallon Foods in 2016 created a significant domestic meat wholesaling and processing group with greater purchasing power and a broader customer base.

One of the big drivers of M&A activity has been slowing levels of growth in mature markets. This is creating an environment for innovative, fast-growing start-ups to come under the radar of larger, slower-growth corporations, according to Fitzell.

He says that businesses may seek to purchase a distribution company to push more, and in some cases new products through to customers. The 2015 sale of La Rousse Foods, which supplies premium food restaurants and caterers to Aryzta, was a prime example of this.

“We are seeing more food producers trying to move up the value chain by developing branded products to try capture more profit margin,” says Fitzell. But he warns that branded food products are under increasing pressure from cheaper own-label products. Second-tier brands are particularly vulnerable to this while the strong, market-leading brands are holding their own. For this reason, brand leaders tend to be very attractive acquisition targets for active consolidators in the sector.

Fitzell says the acquisition by private equity fund, Carlyle Cardinal Ireland (CCI), of Tullamore-based branded chilled food business, Carroll Cuisine in 2015 was a case in point. He explains that Carroll Cuisine was as a proven company driven by a brand which had consumer appeal coupled with a track record of growth and innovation.

International expansion

He says Brexit for some food companies will mean shifting away from the UK market to diversify into other geographies. However, he says on the other hand, some major players are examining whether it makes sense to make acquisitions in the UK to protect against the threat of customs levies.

“Irish-owned businesses are currently punching above their weight in terms of international expansion, particularly in the meat processing sector,” according to Fitzell. For example, Dawn Meats purchased a 49% stake in Elivia, France’s second largest beef and veal processor, in 2015. The deal also included an option for Dawn to increase its stake in Elivia, which has a €1bn turnover, to 70% by 2019.

Another recent Irish success story was the acquisition by Cavan-based Liffey Meats of a majority shareholding in the French meat processor, Chiron Viandes, which specialises in producing frozen hamburgers for supermarkets. ABP also recently expanded its operations in Poland with the acquisition of a third production facility in eastern Poland.

He says Valeo Foods, the branded food company, has also expanded geographically in recent years. Established in 2010 through the merger of Batchelors and Origin Foods, Valeo added Rowse Honey, the largest producer of honey in the UK, to its growing stable of brands in 2014, followed by the acquisition of Balconi, an Italian bakery and confectionery producer the following year.

Ireland for sale

Fitzell says Irish companies continue to attract strong interest from international investors seeking to enhance their European presence. “We also have a very strong pipeline of sale mandates for agri-food companies currently.’’

For many entrepreneurs and family businesses, the exit question is likely to rear its head at some stage. While realising value will be a key driver, there are many reasons why an owner might consider selling, according to Fitzell, including a desire to retire while not having a clear succession plan in place; a wish to expand the business as part of a larger group; or an unsolicited approach from a credible buyer.

Ireland’s meat industry is uniquely exposed to Brexit. He says companies are realising that strategic plans cannot be put on hold to wait for final Brexit certainty.

He explains that the recently announced strategic partnership between Dawn Meats and Northern Irish meat giant, Dunbia, provides Dawn with a Brexit buffer through Dunbia’s considerable UK presence – two large plants in the north and seven in Britain – as well as cementing its UK supply chain.

This followed the sale by Dunbia of its pork operation in Ballymena to listed UK agri-food group, Cranswick plc, in November 2016, which took place against the backdrop of post-Brexit uncertainty and resulted in significant synergies due to Cranswick’s specialisation in pork production.

He concludes it looks set to be a very active second half, especially given the number of acquisition searches and live acquisition mandates IBI is working on for a number of Irish food and agribusiness companies.