The recent spate of mergers and acquisitions in the consumer goods industry shows no sign of abating, as companies across the sector, buoyed by bumper war chests, seek to drive growth, broaden footprints and refocus their portfolios, according to a new study by KPMG.
KPMG’s latest M&A Predictor research suggests the capacity of corporates in both the consumer discretionary and consumer staples sectors to fund inorganic growth, as measured by net debt to EBITDA ratios, is forecast to improve over the next 12 months by 16 percent and 10 percent respectively. Furthermore, their appetite to hit the acquisition trail - as measured by forward P/E ratios - is also expected to rise by 8 percent and one percent respectively.
Put together, these metrics suggest that deals including the merger of Luxxottica and Essilor, and Reckitt Benckiser’s takeover of Mead Johnson may just be the start of a wave of activity impacting the sector over the coming months.
James Murray, Global Head of Consumer M&A for KPMG, explained: “The high-profile deals we’ve seen in recent months are indicative of an ongoing move towards consolidation across the consumer goods sector, with a hard focus on cost reduction as well as synergies to drive margin improvement and earnings growth. In some parts of the industry, businesses are looking to move from being strong in one or two geographies to becoming truly global players. At the same time, large conglomerates are refining and focusing their portfolios, such as Mondalez’s sale of its sugar confectionary business in France and Vegemite in Australia.”
James Murray added: “In the mid-cap market, M&A activity is being driven by a number of smaller, yet attractive high-growth companies which are being targeted by larger corporates seeking to drive sales or gain access to fast-growth categories such as healthy-snacking and ‘free-from’ products.”
KPMG’s analysis of global M&A trends shows that corporates in the US, China and Japan remained the most prolific originators of deals within the consumer goods sector, with France and Singapore trailing behind.
“The flow of capital from Asia to Europe continues to be evident with significant interest from Asian buyers in several businesses that are either on the market, or that we know soon will be. This interest does not only stem from China, but also Japan, where there is a move towards acquiring European businesses due to the fact they are not achieving growth domestically. Asahi’s acquisition of Peroni is a good example of this; and indeed, related to this, we expect to see further activity in the beer sector in particular over the coming months as part of the fallout of the AB InBev deal,” says Murray.
However, it may not be all plainsailing, with a number of both micro and macro-economic factors which longer-term could prompt executives to adopt a more cautious outlook to their growth strategies.
James Murray concluded: “We see a number of factors creating a positive environment for further deal activity in 2017 – an active challenge of the traditional FMCG business model from predators seeing value and shareholders wanting higher returns; corporate balance sheets largely being in good shape; Private Equity interest in consumer assets remaining strong; and financing costs remaining low.
“However, we would be remiss to discount the impact of Brexit and continued wider geo-political uncertainty, alongside changes in the currency markets, nervousness around slow wage growth and rising inflation. Both their individual and collective impact on consumer confidence may ultimately dampen the current enthusiasm amongst corporates for M&A.”
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About M&A Predictor
M&A Predictor is an annual publication by KPMG International combining worldwide mergers and acquisitions results from the last 12 months with the appetite and capacity for M&A deals for the upcoming 12 months. The M&A Predictor data is sourced from Capital IQ, Dealogic and KPMG analysis.
About KPMG International
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 152 countries and have more than 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.