Singapore’s F&B space could see uptick in M&A activity; more businesses up for sale or seeking growth capital

SINGAPORE’S food and beverage (F&B) space could soon see an uptick in mergers and acquisitions (M&A) amid an increasingly challenging macroeconomic environment.

Industry players and market watchers told The Business Times that they see more businesses up for sale, while others seek growth capital to get back on track.

Some acquisitions of home-grown brands have made the news in recent months.

In September, confectionary business Rive Gauche Patisserie, a subsidiary of coffee shop and food court operator Kimly, was sold to Muginoho Global for S$2.8 million.

This was followed by Sun Venture taking full ownership of PSGourmet, the parent of restaurant chain PS.Cafe, on Oct 17. The PSGourmet group recorded a net loss of S$1.5 million for FY2021.

Keoy Soo Earn, managing partner for financial advisory at Deloitte South-east Asia, said the firm has been seeing more enquiries from its clients in the F&B space asking for assistance to raise growth capital.

“The F&B players who have survived the tough years of the Covid-19 pandemic have started to revisit their growth plan, and are exploring capital injection to capture the market opportunities left vacant by the players who have exited,” he said.

Such capital could be used for investments in technology solutions “for reasons such as reducing reliance on labour and to increase the yield per square foot of retail space”, he added.

Andrew Kwan, group managing director of investment firm Commonwealth Capital, noted that the spike in interest rates over the last few months has caused more companies, especially those that are highly leveraged, to consider bringing onboard strategic equity partners to reduce their overall debt.

“The thinking is, it’s not going to get any easier. For those who still want to hang around in this business, it probably makes sense to find good partners to diversify the risk, and also hopefully have a bit more capital to automate, scale up and so forth.”

Commonwealth Capital currently has a “healthy pipeline of potential deals”, said Kwan, adding that he has noticed some emerging brands “born out of the Covid-19 crisis” with “viable concepts” that could use capital. The firm’s F&B portfolio includes Pastamania, Swissbake and The Soup Spoon.

Rise in operating costs

Rising inflation, rental costs and the ongoing manpower crunch are also pushing some players to exit the market before things get worse.

Business brokerage EK Consultancy has been approached by about 12 to 15 F&B businesses looking to sell in the last three months, up from three to five across the same period, said principal consultant Eugene Koh.

Most of these are newer players – from theme cafes, to takeaway kiosks – with one to three outlets, and have been in operation for fewer than five years, he added.

“Around 60 per cent of them are profitable, but these issues are eating into their margins. So they’re worried that over the years, if they continue, they may no longer be profitable.”

Brian Chua, chief executive officer of investment firm Gourmet Food Holdings, has observed a number of mid-sized deals of late, involving established brands that command above S$10 million in sales. His firm’s portfolio includes Vietnamese restaurant chain Mrs Pho and gourmet burger joint Burgs.

“There’s quite a bit of deals on the market right now, companies wanting to sell out at this stage,” he said. “Some shareholders have lost motivation to grow the business; I suspect a lot of it is due to staff shortage, and they can’t grow.”

Trade sale interest has come from larger F&B groups and investment firms with existing F&B stakes looking to strengthen or diversify their portfolios.

Dellen Soh, chief executive officer and chairman of casual dining restaurant chain operator Minor Food Singapore, is looking at buying a majority stake in two to three F&B brands valued between S$2 million and S$20 million. About six to seven brands have sought him out over the past year to join them as a strategic partner, he said.

“Moving forward, things are going to be very difficult with issues like high inflation, high rental costs and labour. So some brands will be looking to sell partially or fully to bigger companies that have economies of scale to run bigger operations and have a better survival rate.”

The rising operating costs are driving industry consolidation, Chua noted. “It’s a good time to expand for us, especially right now, as we’re just out of recovery.” Gourmet Food Holdings, for one, has a central kitchen that supports all of its portfolio F&B brands down to the store level and helps to generate cost savings, he said.

At the moment, his firm has a pipeline of three to four deals. Its latest investment was in home-grown cafe Equate Coffee, which opened in early 2021 and is opening its second outlet in Orchard Central this month.

Sumit Punwani, partner for corporate finance, deal advisory at KPMG in Singapore, noted that deal makers may be taking “a much sharper pencil to the numbers and focusing on value creation to unlock and track deal value at each step” against a backdrop of higher interest rates and borrowing costs.

“In the current climate, M&A activity in the F&B space could be driven by the need to acquire research & development capabilities, distribution networks and operating licences,” he said.

“A transaction can boost synergies between companies, allowing the acquirer to tap existing networks to sell their products, jointly procure raw materials and boost existing plant utilisation.”