Consumer products M&A matchmaking

Consumer products M&A strategy: Finding the right match

A recent Deloitte study, Business model innovation in consumer goods, found that consumer products (CP) companies that demonstrate exceptional financial performance tend to have a strong alignment with a single business model—rather than simultaneously pursuing multiple business models.

As CP companies acquire others or merge together, the business model of the combined business is likely to be a hybrid of the legacy firms—at least for an interim period following the transaction. As such, the process of mergers and acquisitions (M&A) matchmaking can lead to lower coherence and may be accompanied by brand dilution, customer service issues, and market share erosion.

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The impact of M&A on business model coherence

Although there are several factors that, over time, can blur a consumer goods company’s focus and cause it to deviate from its core business model, M&A transactions tend to have one of the most sudden and disruptive impacts on maintaining a coherent business model.

To help explain this disruptive impact, we classified consumer products M&A transactions into four types based on the level of congruence (similarity in business models) between the acquirer and target, as well as their relative size.

Type 1 and Type 2 transactions involve acquirers and targets with congruent business models. The result? A combined consumer goods company whose overall business model coherence is relatively unaffected by the merger. In contrast, Type 3 and Type 4 transactions bring together companies with incongruent business models, which can lead to a sudden and dramatic reduction in coherence for the combined company.

We recognize that it’s possible to combine two companies with dissimilar business models and different levels of coherence into a highly coherent company. However, achieving high coherence requires deliberate M&A strategies and actions to remediate coherence issues after the acquisition takes place. In our view, this ability to actively identify, pursue, maintain, and create coherence in M&A is one of the key differentiators of companies that are able to create more value through M&A.

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Coherence at every step of the consumer products M&A process

​Business model re-alignment—subsequent to a significant M&A transaction—is a critical requirement for sustained and efficient value generation. And companies that don’t do that are often forced into it by the board of directors and activist shareholders.

Over the years, we’ve observed several CP companies spin off significant parts of their business due to aggressive campaigns by activist shareholders toward restoring alignment to a single business model. Acquirers can take specific actions at each stage of the M&A life cycle designed to help preserve and enhance coherence—thereby enabling conditions for greater value creation.

To learn more about the factors that can make or break a deal, download the full consumer products M&A matchmaking report.

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