M&A Activity: Consumer markets

M&A Activity: Consumer markets

Despite the broader backdrop of political and economic uncertainty in 2016 it was still a strong year for M&A deal values in the Consumer sector.

1000

Partner, Deal Advisory

KPMG Australia

Contact

Also on KPMG.com

Mother daughter buying grocery

Consumer Markets

Despite the broader backdrop of political and economic uncertainty in 2016 it was still a strong year for M&A deal values in the Consumer sector, with the third largest global deal of 2016 originating in this sector. While the levels are below 2015, they are significantly above the levels seen between 2009 and 2013.

“There were several large strategic deals in 2016 that bumped up the overall value of deals in the sector, such as the US$46 billion BAT bid for Reynolds American and Danone’s US$10 billion acquisition of WhiteWave Foods. 2017 has started strongly and we expect further large cap activity following Reckitt’s deal to buy Mead Johnson for $17 billion, the €50 billion Luxottica/Essilor merger and Kraft Heinz’s $143 billion aborted approach for Unilever,” says James Murray, Global Head Consumer M&A, Deal Advisory.

“These deals represent an ongoing move towards consolidation, with a hard focus on cost reduction as well as synergies to drive margin improvement and earnings growth. In some sectors, businesses are looking to move from being strong regionally to truly global players. At the same time, large conglomerates are also refining and focusing their portfolios, such as Mondelez’s sale of its sugar confectionery business in France and Vegemite in Australia.”

In the mid-cap market, he adds, activity was driven by a number of smaller but attractive higher-growth companies being acquired by larger corporates seeking to drive sales or gain access to faster growth categories such as healthy snacking and free-from products.

The United States, China and Japan remained the most-prolific originators of deals with France and Singapore trailing behind.

“The theme of capital flows from Asia to Europe continues to be evident with significant interest from Asian buyers in several businesses that are on the market, or that soon will be. Not only from China, but also Japan, where there is a trend toward acquiring European businesses because they are not achieving the growth domestically. Asahi’s acquisition of Peroni is a good example of this and we expect to see further activity in the beer sector as part of the fallout of the AB InBev deal,” says Murray.

“There are a number of factors creating a positive environment for further deal activity in 2017: active challenge of the traditional FMCG business model from predators seeing value and shareholders wanting higher returns; corporate balance sheets in good shape; Private Equity interest in consumer assets remains strong; financing costs low. However, the wider macro outlook and evolving consumer confidence may impact the appetite for further M&A, but this will be a market-by-market basis,” says Murray.

According to the M&A Predictor, corporate appetite for M&A among businesses in the Consumer Discretionary and Consumer Staples sectors, as measured by forward P/E ratios, is expected to rise by 8 percent and 1 percent, respectively. Similarly, the capacity to transact is predicted to improve by 16 percent and 10 percent, respectively.

An Australian perspective on Consumer Markets

We are seeing many of these global themes play out in the Australian market.

JB Hi-Fi’s acquisition of The Good Guys and Bega’s acquisition of Vegemite were the standout domestic corporate deals in the last 12 months, with domestic corporate M&A activity otherwise relatively muted in the retail and food sectors.

International interest remains strong in Agribusiness and food processing, and we regularly see Asian investors participate in sale processes for key medium to long term view assets and leading brands.

Private equity continues to demonstrate a strong level of interest in consumer markets, as illustrated by recent transactions including PEP’s acquisitions of Allied Mills, Patties and Pinnacle, Advent’s investment in Frosty Boy, Quadrant’s roll up of the Rockpool and Urban Purveyor restaurant groups and Platinum Equity’s recently announced acquisitions of Staples’ Australian business and OfficeMax.

TPG’s listing of Inghams was one of the largest IPO’s in 2016 and capital markets’ appetite and pricing of consumer oriented businesses remains strong. The pipeline of potential 2017 IPO’s is strong, including Officeworks, Zip Industries and the Super A-Mart Group.

There continues to be winners and losers in retail as businesses continue to adapt to changes in consumer demand, channels to market and increasing competition. This has been clearly evidenced by an increasing number of brands struggling and/or entering into administration in recent months such as Marcs, David Lawrence, Herringbone, Rhodes & Beckett and Howards Storage. Very few sectors have witnessed market disruption with the speed and scale seen in retail and we expect this to continue to place pressure on retailers who are slow to respond. Further, the impact of Amazon’s arrival in Australia and the future role of the shopping centre continue to be speculated upon.

Overall, Q1 2017 has continued to demonstrate strong levels of deal activity in this sector and we anticipate current trends continuing, with private equity continuing to lead activity in 2017 and strong mid-market deal volumes. In particular, we expect further consolidation in pubs and restaurant groups, automotive retail and the food supply chain.

Food, Drink & Consumer Products

Food, Drink & Consumer Products

We help clients in the food and drink sectors and consumer product companies deal with business issues and explore growth opportunities.

Deal Advisory

Deal Advisory

KPMG’s integrated team of specialists works at deal speed to help you find and drive value throughout your deal and transformation lifecycle.

Connect with us

 

Request for proposal

 

Submit

KPMG’s new-look website

KPMG has launched a state of the art digital platform that enhances your experience and provides improved access to our content and our people, whatever device you are on.