Mergers and acquisitions on the UK food and drink sector are set to pick up in 2010 after a collapse in deals in 2009, sector analyst Grant Thornton LLP has predicted.

There are signs of recovery in the mergers and acquisitions (M&A) market in UK food and drink, Grant Thornton said in a report yesterday (12 January).

Recession in the UK meant that there were only 70 deals across the industry in 2009, down 30% on 2008 and well below the 132 deals reported in 2007.

"M&A activity in the food and drink sector was extremely depressed in 2009 both in terms of volume and value," said Grant Thornton's food and drink sector head, Phil Jackson.

"Over half of the transactions completed related to acquisitions from insolvent companies or businesses in distress."

The biggest deals of 2009 were A-B InBev's sale of Tennent's lager to C&C Group for GBP180m (US$286m) and Pernod Ricard's sale of Tia Maria to Illva Saronno for EUR125m (US$178m). No other deal broke the GBP70m barrier.  

But, Grant Thornton pointed to a rally in food and drink companies' share prices, reflecting profit rises boosted by firms' efforts to cut costs in 2009.

"The recovery in profitability is bringing buyers back and encouraging potential sellers to test the market," said Jackson.

"Highly leveraged groups may also gauge that the timing is now right to sell some assets to reduce debt. In addition foreign buyers will be attracted by the relative weakness of sterling," he added.