Raising a glass to Ireland’s food and beverage sector

Raising a glass to Ireland’s food and beverage sector

By: Damien
04 Jan, 2022
Ireland’s food and beverage sector has continued its strong performance of 2020 throughout 2021 – and this looks set to be maintained into 2022 and beyond, which will food for thought for domestic and international investors.

When a company grows its annual revenues by more than €900 million in 11 years, then it should come as little surprise that the business is snapped up in a mega-deal.

That happened to Dublin-based Valeo Foods Group back in May. The company, which includes honey brand Rowse and crisp name Kettle in its portfolio, was sold by CapVest to Bain Capital Private Equity for €1.7 billion, according to reports.

Valeo Foods, which posted revenues of €1.1 billon for the year to March 2021 – compared to €200 million back in 2010 – has been acquiring businesses regularly during the past decade and is now selling into 106 markets across the world.

Nigel Walder, a managing director at Bain Capital Private Equity, explained the rationale behind the deal. “Valeo Foods has been developed into a key player in the European food industry by a talented and ambitious team,” he said. “We believe Valeo has further potential to grow significantly, both organically and through acquisitions, and look forward to partnering with Seamus [Kearney, Group CEO of Valeo Foods] and his team to accelerate that growth trajectory and further consolidate the Company’s position as a leading international food business.”

Kearney echoed these sentiments. “Bain Capital’s deep knowledge and heritage in innovation and investment in the food and grocery sectors means this is great news for our business and our people,” he said. “We are very excited to work alongside the Bain Capital team as we continue our journey and pursue our ambitious plans for further growth in the future.”

This deal was one of the biggest in Ireland in the first half of the year in terms of consideration, and by far the biggest in the sector – and an indicator of the confidence in the market currently.

Drink up



The confidence is understandable. The food and beverage sector escaped the worst economic ravages of the COVID-19 pandemic – people still have to eat, after all – which means that investors are looking favourably at the sector.

It is also one of Ireland’s biggest industries, with an annual turnover in excess of €25 billion, of which more than €10 billion is exported – the country is the biggest next exporter of dairy ingredients, beef and lamb in Europe, and the largest supplier of food and drink to the UK. More than 230,000 people are employed in the sector.

There is also plenty of potential for further growth in the industry, especially by developing export markets to huge markets such as China and Brazil. Technology will also play a significant role in the future of the sector, with new techniques being used to reformulate products to make them healthier to respond to growing concerns over the impact of salt and sugar in diets. Ireland is one of the leading nations in Europe for this work.

Issues such as these are influencing the M&A policy of one of the larger food and beverage companies in Ireland, Kerry Group. In June, the company completed two huge deals that demonstrated its changing priorities. [www.kerrygroup.com/media/Kerry-reaches-agreement-to-acquire-Niacet-for-853m.pdf]

Firstly, Kerry sold its UK and Ireland consumer foods meats and convenience meals business, which includes sausage brands Richmond and Wall’s, to Pilgrim’s Pride for €819 million. Kerry’s strategy is to sell off parts of the business no longer seen as core, such as grocery supply, to focus the food and beverage ingredients market, which has higher margins.

To that end, a few days later Kerry announced an €853 million deal to buy Niacet Corp, which preservatives for the bakery and pharmaceuticals sectors, and low-sodium preservatives for meat and plant-based food, from SK Capital Partners.

“The acquisition of Niacet’s complementary product portfolio enhances our leadership position in the fast-growing food protection and preservation market and significantly advances our sustainable nutrition ambition,” said Edmond Scanlon, CEO of Kerry. “We are excited at the potential the combination of our two businesses offers to outperform in this important and attractive market.”

Kelly Brannen, CEO and significant minority owner of Niacet, added: “We view the sale to Kerry as a perfect fit. It will allow Niacet to grow at a much faster rate and sell in new markets around the world.”

Investment



But it isn’t just at the large end of the market that there is dealmaking activity. In December, the Redesdale Food & Beverage Fund launched a €75 million fund focused on providing seed and early stage capital to Irish food entrepreneurs. This is said to be the first fund of its kind in Ireland. The team behind the fund includes well-known financiers, food sector leaders and commercial scientists. Enterprise Ireland has invested €15 million into the fund through its Seed & Venture Capital Programme. Other backers include leading Irish businesses Musgrave Group and Monaghan Mushrooms. US asset management firm Lord Abbett, Coca-Cola and Tate & Lyle are also involved.

“The food start-up sector in Ireland is fuelled by a strong entrepreneurial culture and underpinned by world class research but access to capital remains a challenge,” said Simon Cummins, chair of Redesdale Group.

“Our mission is to provide start-up capital to help realise the ambitions of a new generation of food sector leaders in this country.”

One of the reasons for setting up the fund was because of optimism about the future potential in the food and beverage sector in Ireland. John Conroy, the founder and former CEO of Merrion Capital, and one of the names behind Redesdate, said: “The importance of securing the food supply chain was underlined during the pandemic. Underneath, there are profound changes in the nature and sourcing of food and beverage products, as food plays an increasingly important role in individual and governmental health strategies and as we seek to move to a more sustainable future. Ireland is at the forefront of that change in food and beverage.”

Future growth



Conroy maintains there is much optimism about the sector, and, as the above examples have shown, there is potential for investment and acquisition at all levels of business now and going forward. With the market changing and increasing emphasis on healthier foods that is produced more sustainability and fewer CO2 emissions in the food chain, there is plenty of potential for established businesses but also new and innovative companies to make advances in the market and bring profitable new products to consumers.

Many companies will be looking to increase their spend on research and development into new and healthier products, and those that are successful in making such products have potential to make significant inroads into the market – and increasing profitability as a result. Another advantage Ireland has is that it is viewed as a convenient place for international businesses to base their European operations as English is the native language and it is part of the European Union and the single market. This gives Ireland an advantage over near neighbour the UK, which is no longer part of the EU or single market, which makes exporting to Europe more expensive and cumbersome.

There is also no shortage of skilled labour in Ireland – the sector employs more than 200,000 people and there are plenty of graduates entering the labour market every year with qualifications in the technical subjects for researching how to improve products.

Considering all this, investors should certainly consider investing in or acquiring Irish food and beverage companies in the coming years, with a strong core market and potential for further growth, healthy returns could be made.

Advice



If you are interested in establishing, investing into or acquiring a food and beverage business in Ireland, then it is crucial to obtain sound advice. Malone & Co Accountants https://www.maloneaccountants.ie/ can assist on all the relevant aspects from setting up a company to providing diligence services as part of an M&A deal or funding round in the sector.
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