Fresh produce companies in the UK should brace themselves for a series of takeovers and sell-offs, a new report from industry analysts Plimsoll Publishing suggests.
The report finds that a combination of needs is forcing smaller companies to consider selling to their larger rivals, while larger players are looking to buy their smaller rivals to diversify and develop their businesses.
David Pattison, senior analyst at Plimsoll, said: “It has a great deal to do with necessity. Many of the larger players in the market, despite the downturn, are desperate to find new ways to develop their business, but with the current climate, costs are being cut and business development is being slashed. So they need options to help them protect their futures and tap into exiting revenue and profit streams. Financing a series of small acquisitions at key niche players in the market will give them two clear benefits: a quick route to increasing sales for relevantly low cost and a foothold in the emerging sectors of the market.”
Plimsoll has found that for the last few years, the larger companies have been surviving on wafer thin margins, most only making 1.9 per cent or less, and 100 of the UK’s top 1,200 players are actually losing money at the moment. “This is evidence that their strategy of chasing sales and volume compromises profits,” said Plimsoll.
Meanwhile, at the other end of the market, an emerging group of 284 companies are smaller, high focused players. These fast-growing companies have been able to carve out niche markets for themselves, some with premium profit margins. The best examples of these companies are reporting sales increases of well over 23.3 per cent per year and reporting margins of 3.3 per cent.
However, Plimsoll reports that despite the excellent returns, there now seems to be an eagerness to sell from many of the owners. Several factors are at play here: a combination of their businesses now reaching a critical point in their development, twinned with the tightening of credit and a reluctance of the money markets to finance the next phase of development.
“In today’s market, selling their business makes sense for two clear reasons: it brings the chance of stability and security to protect the business; and it accelerates the development of the company due to extra resources,” said Plimsoll.
Pattison added: “It would be a pity if some of these exceptional businesses went to the wall, or do not get the maximum chance to prosper just through lack of funding.”
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