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Measuring The Pulse
Consumer Products M&A Insights: Winter 2017
2016 was a year of continuing strong levels of European deal activity against a backdrop of uncertainty. Will deal momentum continue throughout 2017?
Overview of consumer product M&A activity
- Significant merger and acquisitions (M&A) deal activity was seen within the European consumer products sector in 2016
- 43 large European deals – with deal values exceeding €200 million – were either announced and / or completed in 2016*
- The combined value of these deals topped €200 billion, compared to 36 deals in 2015 amounting to €143 billion
- 13 of these deals were valued at more than €1bn
- The United States emerged as the top “target” country for large deal activity by European buyers, with 11 of the 43 large deals involving the acquisition of US businesses
- The food and beverage segments accounted for over half of European large-deal activity
* relates to the twelve month period to September 2016
Our report reviews 2016 deal activity levels in five areas within the consumer products sector – food, beverage, personal and household goods, tobacco and agriculture & livestock - and provides insight into the likely M&A trends for 2017.
Food: Strategic opportunities drive deals
Transactions in the food sector over the last 12 months were broadly in line with 2015 activity levels, with strategic opportunities in new and existing markets and growing focus on health and wellness mainly driving deal activity.
Looking ahead, we expect consolidation and sustainable growth plays to continue across the food segment’s mainstream categories whilst addressing changing consumer preferences.
Beverage: Mega-merger fuels activity
The completion of the mega-merger between the two brewing giants ABInBev and SABMiller marked the largest beverage transaction since we started our insights review back in April 2013 triggering further M&A activity in the brewing space.
Deal activity is likely to continue with ongoing acquisitions of premium spirit brands (including through asset swaps between major players), search for alternative health and wellness product offerings and continued interest in the high growth craft market.
Personal and household goods: deal activity remains resilient
M&A activity in the personal, apparel and homecare space continued its positive trajectory with personal care being the most active segment in terms of large deal activity and corporate acquirers leading the acquisition march in the segment.
2017 deal activity is likely to be underpinned by a continued realignment of business models to build leading market positions and due to the cyclical shift in the way the consumer’s preference is changing from buying products to experiences.
Tobacco: Further consolidation triggered
The number of large-scale M&A deals was lowest in the tobacco segment; however, the recently announced proposed merger of BAT and Reynolds will create the largest listed tobacco company in the world by sales and is likely to trigger further consolidation within the sector.
Further deal activity in 2017 is expected for companies that provide growth opportunities in new geographic markets, boast multi-channel distribution models and have a portfolio of products that span across disposal (refill) and rechargeable categories.
Agriculture and livestock: commodity price volatility takes its toil
Whilst deal values were lower than the prior year, the sector remains active from an M&A perspective.
Commodity price movements have been an important factor in the industry over the past year and an increasing area of focus while evaluating deals as previously hedged positions expire.
Over the course of 2017, we expect to see rising commodity prices squeezing margins, with opportunities that deliver scale in the form of volume growth and new markets including through consolidation being key for the segment.
Merger and acquisition prospects for 2017
The UK and US political shifts over the past year have elevated levels of economic uncertainty and, historically, there has been a strong correlation between heightened policy uncertainty and reduced M&A appetite. There is also, however, strong historical evidence that M&A markets tend to recover quickly once such uncertainty subsides.
Overall, we expect the following themes to influence M&A activity this year:
- The resilience of the UK economy following Brexit and the continuing weakness of sterling
- The impact of well-funded overseas buyers, particularly through the American and Asian corridors into the European markets
- Continued demand for assets which offer and enhance sustainable growth