South Africa’s food and beverage (F&B) sector is expected to experience mergers and acquisitions (M&A) activity driven by the need to consolidate through vertical integration in order to address food scarcity concerns.
This came out of the latest Grant Thornton’s International Business Report (IBR) on the F&B sector. The report said local producers are hoping to vertically integrate their supply chains from grower to final consumer in order to overcome the projected scarcity concerns and remain competitive. The report shows that producers were optimistic about potential M&A opportunities in the year ahead.
“Much like global giant Walmart showing interest in South Africa’s Massmart, we’re expecting more activity of this nature in the next few years.” says Steven Kilfoil, Corporate Finance director at Grant Thornton Johannesburg. “The F&B sector provides great opportunity for consolidation and the African continent is brimming with possibilities for those looking at new growth avenues.”
According to the report, 46% of South African businesses looking to expand through acquisitions over the next three years expect to do so through cross-border transactions.
Kilfoil added that the F&B sector has seen strong growth in the past few years. “It has proved itself 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 report added that 20% of businesses in this sector globally are investigating M&A opportunities as this will help deliver scale for greater efficiencies and more muscle when negotiating prices with retailers.
Kilfoil says it is evident from the report that South African F&B producers are already gaining market share. “A number of them are already making use of the opportunities on the rest of the continent and gaining market share in other African countries.”
One reason why the African continent is so attractive for F&B activity is the fact that its agricultural sector provides plenty of opportunities for investment.
“We are positive about increased M&A activity in the F&B sector as the conditions seem ripe for investors looking to expand,” he concludes.