43 HORIZONS | BDO'S GLOBAL VIEW OF MID-MARKET DEAL ACTIVITY

FOCUS ON IRELAND’S AGRI- AND BEVERAGE SECTOR SECTOR SEES BUOYANT M&A ACTIVITY DESPITE BREXIT UNCERTAINTY

The agri-food and beverage sector is Ireland’s most important indigenous industry and has seen a surge in export growth in recent years. 2017 has been another mega year for food and drink exports which rose to a record USD15.1 billion in value terms, a 13% increase from 2016 and the eighth year of consecutive growth.

As expected, the dairy and meat sectors The Irish beverage industry continues to In terms of notable deals, there were a have been substantial contributors to the thrive, now exporting drinks to 139 markets. significant number of transactions in the overall growth, but the scaling up and There has been growing international protein processing sector. ABP, one of internationalization of prepared/consumer demand for premium Irish whiskey (on the Europe’s leading privately owned beef and more recently drink companies is back of the ongoing emergence of new processors, made acquisitions in a significant development. distilleries), craft beer and other liquor and the UK. products, particularly in North America and It is well known that Ireland is hugely Another major player in the Irish meat throughout Asia. dependant on the UK market for exports. space, Dawn Meats, acquired Dunbia’s beef The UK remains a key export destination Agritech is another area which has shown and lamb processing division in Ireland and accounted for 35% of exports in 2017, potential with number of emerging and entered into a strategic partnership which equates to nearly USD 5.4 billion companies in this space. Finistere Ventures with Dunbia to service the UK market as in value. This is down from 43% in 2015 from the US and ISIF, an Irish sovereign well. Capvest purchased a leading player and 37% in 2016. Ireland’s unique reliance development fund have partnered up, in the pork sector, Karo Group, who have on the UK market is in marked contrast launching a USD 24m investment fund to operations in Northern Ireland and the UK. to fellow member states within the EU. In help agritech companies maximise their 2017 also saw the sale of Irish-based chicken addition, some sectors such as Ireland’s potential and exploit growth opportunities processors Moypark to Pilgrim Pride for USD beef industry exports in excess of 50% in international markets. 1bn and Carton Group to Scandi Standard of its output to the UK and the potential AB, a Swedish-listed business. There is no introduction of tariffs and/or quotas when FUTURE PROSPECTS doubt that some of the aforementioned the UK separates from the EU could be There is no doubt Brexit initially had a deals are seeking to mitigate in part, any devastating for the industry. slowing effect on M&A transactions as post-Brexit impacts. However, improved market reach has companies adopted a cautious “wait and In the food service, prepared/consumer been evident over the past 12 months or see” approach to events. However, despite foods area, Mayfair Equity Partners in the so, as a greater proportion of Ireland’s the ongoing Brexit cloud, the Irish agri- UK acquired a majority stake in Promise exports have gone to other European food and beverage sector experienced a Gluten Free, a bakery business based in countries and international markets. The significant uplift of M&A activity over the Donegal, for a reported USD 120m. At the initial depreciation and ongoing volatility last 12 months, with a significant proportion back end of the year Musgrave, a leading of sterling post the Brexit vote in June of these deals being cross-border. retail/food distribution group, announced 2016 and an increasingly competitive UK This has been driven in part by the need for the acquisition of La Rousse Foods and market environment for Irish products has market consolidation in certain industries Lily O’Brien’s, the Irish manufacturer of forced businesses to look beyond the UK. and by others seeking to diversify and premium and desserts, agreed to According to the latest Bord Bia export develop an international footprint, looking be acquired by Colian Holding SA, listed on performance and prospectus report (an for new customers and markets. the Stock Exchange. Kerry Group, Irish state agency responsible for promoting Total Produce, Glanbia plc and Valeo Foods sales of food internationally and in Ireland), Furthermore, there are more funding were all involved in a number of deals Irish food and drink exports to international options available than any time in the throughout the US, UK and Europe. market increased by 17%. This was driven by recent past. There is a large pool of The drinks industry saw significant increased exports of dairy, prepared foods uninvested growth capital finance available investment by private equity and family and drink to the United States, Middle East, from equity providers, both locally and office funds alike, along with international Asia and Africa. The United States is now internationally, to support ambitious Irish trade players. Renegade Waterford Distillery Ireland’s second largest export market with food companies that can demonstrate raised USD 24m investment, Teelings circa. USD 1.2 bn in sales, followed by China. growth potential in global markets. ISSUE 1 | 2018 44

Whiskey received investment from Bacardi MARKET DISTRIBUTION OF IRISH FOOD AND DRINK EXPORTS (%) and Spanish drinks group Hijos de Rivera 50% acquired a minority stake in well-known 45% Irish craft beer brand O’Hara, owned by 40% Carlow Brewing company. 35% 30% OUTLOOK 25% We expect M&A activity to be buoyant 20% again in 2018 with a significant portion of 15% cross-border deals. Despite the ongoing 10% challenges faced by certain sub-sectors of 5% the Irish , there is a growing 0% level of confidence amongst Irish companies United Kingdom Other EU Int. Markets to scale and diversify beyond the traditional 2016 2017 Source: Bord Bia export performance and prospectus report 2017- 18 UK market, which they are increasingly doing through M&A activity. Furthermore, SHARE OF MEMBER STATE AGRI-FOOD EXPORTS TO THE UK IN 2015 (%) 43.2% Irish food and drink companies will continue to be attractive targets for both UK and international suitors as they seek to maintain free access to EU markets. There is no doubt the uncertainty of Brexit will disrupt M&A transactions. However, it will also create new opportunities for those 9.9% 10.3% seeking to adapt. 8.9% 9.3%

Belgium France Denmark Netherlands Ireland RICHARD Source: Eurostat DUFFY CHANGE IN INTERNATIONAL EXPORTS BY REGION 2016 VS. 2017 (%) DIRECTOR, BDO CORPORATE FINANCE 30% FUNDING & HEAD OF AGRI-FOOD ADVISORY 25%

20% [email protected] 15%

10%

5%

0%

-5%

-10% Asia North America Central & Africa MENA Other non EU South America Source: Bord Bia export performance and prospectus report 2017- 18