Last year’s bumper food M&A activity set to continue in 2017

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Merger activity in the UAE’s food and beverage segment, which surged by US$3bn in 2016, is expected to remain strong this year, albeit after a slow start.

That is according to Mergermarket, an M&A data monitor, which has reported four consumer deals already in 2017 that are together worth US$104m.

Ruth McKee Al Ghamdi, Mergermarket’s regional head, said food and beverage continues to be a hot sector for M&A activity in the Middle East. 

In an era of low oil prices, challenging economic conditions and stiff competition, thriving businesses are highly sought-after by corporates and private equity firms,” she said. 

A number of successful concepts are expanding throughout the region through opening company-owned locations or franchising. Most deals in this space will likely be seen in UAE, Saudi Arabia and Egypt.”

Following a slow start to this year, Nestlé’s US$33m acquisition of Caravan Marketing Company, an Egyptian instant coffee manufacturer and owner of the Bonjorno brand, has led the big deals. 

The acquisition reflects Nestlé’s ambition to invest in Egypt and the fast development of a rapidly growing soluble coffee segment which has been gaining popularity in the region.

Another hitherto headline-hitting deal involves Brazilian meat producer BRF’s sale of part of its halal food unit, One Foods, which could be worth an estimated US$5m. 

Interest in the asset has dropped after Brazilian police reports revealed a criminal investigation of the country’s meat industry, however. The stake may be targeted by Saudi Agricultural & Livestock Investment and the sovereign wealth funds, Abu Dhabi Investment Authority and Qatar Investment Authority.

The second half of the year is expected to see F&B deal activity pick, said Al Ghamdi, with intelligence pointing to a further flurry of small-cap deals, including Emirates Modern Poultry Co (Al Rawdah), which is mulling a US$20-30m joint-venture in Kuwait and Oman to increase export capabilities.

Another deal in the pipeline involves Lebanese food chain Shawarmanji, which has been in advanced discussions with a private equity firm over a stake sale. 

Shawarmanji has signed franchise agreements to launch 50 outlets in Saudi Arabia in the next seven years, with discussions to open further franchises in Oman and Egypt and plans to enter Europe by the end of 2018,” said Al Ghamdi.

Jayshree Gupta, corporate partner at financial law firm Baker McKenzie Habib Al Mulla, agreed that deal flow in consumer-led sectors remains steady, with activity in the food and beverage sector maintaining momentum this financial year. 

The UAE traditionally sees a large chunk of the region’s F&B activity, and we expect to see continued interest in both domestic and cross-border transactions, with some mega deals achieved in the Middle East last year,” Gupta said.

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