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Global Food and Beverage Producers Eye Industry Consolidation

According to the latest findings in Grant Thornton International Business Report (IBR), the global food and beverage (F&B) producers, having been absorbing higher cost, will usher in a new round of consolidation trend. One-fifth of the global F&B businesses are seeking acquisition opportunities with a view to expand business scale and gradually to improve profitability.

The report reveals that there were 289 global F&B transactions in 2010, rising by 13 per cent from 2009. The value of deals also rose sharply to $38 billion in 2010, up almost 42 per cent. Although the number of announced transactions remained significantly below 2007 levels, it was higher than in the previous two years.

In Mainland China, the acquisition of F&B sector has also experienced a robust growth in 2009 and 2010, with the completed acquisition deals totalled 22 and 20, and the deal value amounted to $514 million and $943 million respectively. 1

The rising costs pose the F&B sector greater competition pressure which turn into the catalyst from industry consolidation. World Bank’s data shows that the agricultural prices increase by 45 per cent between June 2010 and February 2011. Unable to continue absorbing rising costs, 41 per cent of F&B businesses now expect to increase their prices over the next 12 months to protect margins, compared to only 12 percent a year ago.

The inevitable price rises, however, will not necessarily translate into a rise in profits. According to IBR results, 62 per cent of privately held businesses expect revenue to increase over the next year. However, only 43 per cent of businesses surveyed expect improved profits over the next 12 months. A period of consolidation is inevitable in order to seek wider profit margins.

Chinese F&B industry has completed a number of important acquisition deals this year. The rising cost that the sector is facing globally, compel the producers to increase product prices. Meanwhile, the narrowed margin will continue to push forward industry consolidation for those seeking to expand business scales and enhance competitiveness. The consolidation will help deliver better efficiencies and give businesses flexibility in price negotiations with big retailers.

The Mainland’s F&B producers are also actively involved in the wake of global industry consolidation. Overseas mergers & acquisitions not only make possible for overseas expansion, these also help introducing higher F&B standards back to China markets and facilitating the local industry development. Sector consolidation may be considered as an effective way to achieve business growth over growing organically as it generates different development opportunities.

1 Source: Zero2IPO Group

Content provided by Grant Thornton Hong Kong Limited
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