Protecting the reputation of an industry worth €9bn in exports

Upholding the safety of Irish food is critical in light of the ‘horse burger’ controversy

The level of transactions in the Irish food and beverage sector last year shows a vibrancy and international dimension that many other sectors of the economy should be jealous of.

According to our new report*, the value of mergers and acquisitions in the Irish food and beverage (F&B) sector rose 32 per cent to €726 million in 2012, driven by a sharp rise in deal flow between Ireland and the US.

The fly in the ointment has been that the new year has started with the damaging “horsegate” controversy, posing a threat to the reputation of Irish produce, which has its foundation in high standards of regulation and food safety, and our natural green environment.

At this time it is vital that the industry holds its nerve, and collaborates to create a resilient supply chain that can minimise costs while ensuring Irish produce maintains its international standing.

Irish food companies must continue to invest in ensuring a robust and safe supply chain in order to protect the reputation of an industry that contributed €9 billion in exports last year.

At Grant Thornton, we believe the definition of sustainability goes beyond the “greenness” of food production to include the equally important need to share the financial reward for effort and risk across all participants in the sector.

Acquisitions

Achieving sustainability will involve fundamental changes in productivity, smart innovation, pricing transparency, co-operation and alignment across the food supply chain.

We need to ensure that the interest from US in investing in high quality Irish companies with authentic products and strong brands continues into the future.

US acquisitions of Irish businesses last year included Hain Celestial’s €10 million purchase of Cully & Sully, the Cork-based producer of high-end ready meals. Whiskey giant Beam Inc also completed its purchase of Cooley Distillery in January 2012, and followed up in December with the acquisition of 2 Gingers Whiskey.

Equally, Irish firms were major investors in the US in 2012, with five deals completed, compared with just one in 2011. C&C’s €235 million acquisition of the Vermont Hard Cider company was the biggest outbound US transaction last year, with Glanbia’s €49 million purchase of nutrition drink group Aseptic solutions the second largest.

Companies such as Glanbia and Kerry Group have had tremendous success due to strong business and cultural synergies and both managements’ understanding of the opportunities and the scale that the US sports nutrition and food ingredients market has to offer.

M&A activity in the sector will continue to be vigorous in 2013, where there will be opportunities for businesses with a strong leadership team, and a dynamic business plan.

Vendor price expectations are generally adjusting downwards, making it easier for buyers to take the plunge; and while financing deals remains a challenge, there are signs that access to debt is improving, which is particularly important for private equity participants.

In the future we also see Asia as a growing market for Irish food exports and as a potential source of investors.

Cash-rich Asian companies are likely to take an interest in Irish food businesses whose operations may be thriving, but where balance sheets are stretched by ill-judged property investments made in the boom.

According to Bord Bia, the region is targeted for further expansion in 2013, after a 25 per cent rise in exports in 2012.

While growth in Irish F&B exports to international markets has undoubtedly been driven by the performance of large corporates, what’s exciting is the range and variety of Irish businesses seizing the export opportunity in emerging and growth markets.

Lucrative

Glenisk has a partnership with Gorta to develop a dairy processing plant in Kenya’s Rift Valley; Asian sales account for 20 per cent of Rosderra Meats; and Silver Hill Foods is successfully exporting duck to the Far East and China.

It’s not just the meat industry that’s looking to Asia. Jade Ireland Seafood, a joint venture between four Irish seafood companies, is an attempt to collaboratively establish a presence in the lucrative Chinese seafood market. The demand for premium Irish shellfish has grown solidly in China and is expected to be valued at more than €1 million in the coming 12 months.

This range and variety of company looking overseas is one of the factors that give Grant Thornton optimism for the F&B industry in 2013.

The robust and rapid response to recent supply chain controversy will hopefully ensure that confidence in the quality of Irish produce is maintained, and that the sector remains an ongoing focus for deal makers over the next 12 months.

Ciara Jackson is head of food at Grant Thornton

*A copy of the report Smart Money in Food and Beverage: Tracking Growth in Turbulent Times is available to download at grantthornton.ie