Tuesday 25 June 2019

Tesco-Booker tie-up kicks off a flurry of deal making in 2017

2017 was punctuated by the Tesco-Booker deal and a mega merger of Standard Life and Aberdeen Asset Management.

Supermarket giant Tesco ensured the year got off to a strong start when it announced a £3.7 billion swoop for food wholesaler Booker (PA)
Supermarket giant Tesco ensured the year got off to a strong start when it announced a £3.7 billion swoop for food wholesaler Booker (PA)

By Ben Woods, Press Association Chief City Correspondent

Brexit uncertainty failed to choke off a string of deals in 2017, with Britain’s fiercely competitive grocery sector booking a number of high-profile transactions.

Supermarket giant Tesco ensured the year got off to a strong start when it sent a shockwave through the industry in January by announcing a £3.7 billion swoop for food wholesaler Booker.

Dubbed a defensive move by some analysts, the deal was designed to beef up Tesco’s dominant position by creating the “UK’s leading food business”.

Rival wholesalers rallied against the move, claiming it would hand Tesco an “incontestable power” and urged regulators to shift the takeover onto the scrap heap.

However, the Competition and Markets Authority (CMA) gave the final all-clear to the deal in December, saying it would not lead to higher prices or hit service for shoppers.

The industry was given more food for thought come June when Amazon sealed an all-cash deal worth 13.7 billion US dollars (£10.7 billion) to buy Whole Foods, causing shares in British supermarkets to tumble.

The acquisition ramped up Amazon’s stake in the UK grocery market following the launch of AmazonFresh and its deal to sell a raft of Morrisons products online.

Sainsbury mulled a takeover of convenience store operator Nisa, as it looked to push through its second major retail deal in as many years.

But the group’s reluctance to pull the trigger meant the Co-operative Group emerged victorious, tabling a £137.5 million bid for Nisa’s 3,200 stores, which is set for regulatory approval next year.

Jonathan Boyers, KPMG head of corporate finance in the North of England, said the Tesco and Co-op deals signalled a push from the major players to tackle the convenience sector “more effectively”.

He said: “They have all sort of dabbled in developing their own chains of convenience stores, but the independent convenience stores sector has remained independent.

“Obviously the Tesco-Booker deal was a game changer and that forced the Co-op to look at Nisa. It caused a shake-out in the whole end of that sector and I just think that it was almost waiting to happen because the supermarkets hadn’t cracked what their solution for convenience was.”

Standard Life and Aberdeen Asset Management ushered in one of the biggest deals of 2017 in March when it inked an £11 billion merger to create a combined company with a 16-strong board.

While the merger formed Europe’s second-biggest fund manager, it also paved the way for swingeing cost savings of £200 million a year and 800 job cuts.

The wider financial services sector also proved a bright spot for deal making, with the focus landing on fin-tech and payment processing firms.

Private equity pair Blackstone and CVC Partners secured a £2.96 billion takeover of Paysafe in July, as they looked to capitalise on the insatiable demand for online shopping.

Worldpay followed suit a month later when it agreed a £9.3 billion merger deal with US rival Vantiv, creating a global payments processing giant with a value of £22.2 billion.

While Brexit uncertainty took its toll on deal-making in the aftermath of the EU referendum result, there was a renewed vigour for mergers and acquisitions (M&A) in the third quarter of this year.

The Office for National Statistics (ONS) said there were 163 M&A deals involving a UK company between July and September, with a total value of £86.4 billion.

It proved a significant jump on the second quarter when 241 transactions worth £33.2 billion were given the go-ahead.

US group McCormick’s 4.2 billion US dollar (£3.2 billion) takeover of Reckitt Benkiser’s food brands was one of the bigger deals sealed during that period.

It propelled McCormick to the number one position in American’s condiments market as it gobbled up French’s mustard and Frank’s hot sauces.

It marked a year-long trend for deal-making in the consumer goods sector, which kicked off in February with Kraft Heinz’s failed swoop for Unilever.

The Anglo-Dutch company snubbed the opportunity to secure one of the biggest deals in corporate history by rejecting a £115 billion mega-merger with the US maker of Heinz Tomato Ketchup and
Philadelphia cheese.

In an effort to boost shareholder value, the Marmite and PG Tips owner launched a “comprehensive review” of the business, leading to the 6.8 billion euro (£6 billion) sale of its under-performing spreads business to private equity firm KKR in December.

Despite occurring on the other side of the Atlantic, Walt Disney’s 52.4 billion US dollar (£39 billion) December deal for 21st Century Fox is set to have wider implications for the British media landscape.

Fox said it will press ahead with attempts to buy the 61% of broadcaster Sky it does not already own before the deal closes in 12 to 18 months time, which could hand Disney total control of the Sky News broadcaster.

Press Association

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