April – October 2013
Capital confidence barometer: consumer products
Improving optimism: 58% of respondents see economic growth at the global level
Better credit availability: 46% of respondents see improving availability of credit
Capital optimization in focus: 61% of companies today putting greater focus on optimizing capital
Rising valuations: 51% of companies expect valuation of assets to increase in the next 12 months
Our eighth Capital Confidence Barometer shows increased optimism about the global economy among consumer products executives. This has spurred the appetite for growth, but capital optimization remains in focus.
Positive sentiment for global economic growth is at its highest level at 63%. More than half of respondents are also positive on corporate earnings and employment growth
The consumer products sector is mirroring the dramatic global rebound in optimism on the economy. Respondents are overwhelmingly positive about the regulatory environment supporting business growth at the global level.
Consumer products executives in emerging market countries generally show greater confidence in their local economies versus the global economy. Like other sectors, consumer products companies view the Eurozone crisis and the slowing down in emerging markets as ongoing risks to their businesses.
What drives the boardroom agenda?
The importance of capital allocation has increased, with 61% of consumer products companies today putting greater focus on this. Efficiency and cost control as well as risk management remain the top two issues.
Compared to 6 months ago, consumer products companies have increased their focus on capital allocation, people and investor relations, while fewer are now focusing on innovation and R&D to drive growth. But is this sustainable in the long term?
Cash: primary source of deal financing
For consumer products companies, confidence in global credit is getting stronger. Similar to other sectors, 55% of the consumer products companies will likely finance upcoming deals with cash.
Fewer than ever plan to use debt as the primary source of deal financing (30%), despite abundant credit availability.
Companies’ reluctance to use their own equity may be indicative of volatility in the capital markets.
Appetite for growth rebounds
Like other sectors, the number of consumer products companies focused on growth increases with the improving economic outlook. However, organic growth remains the top preference of companies. Debt pay down also remains in focus.
The pendulum is swinging back, and consumer products companies are again focusing more on growth and less on return to stakeholders.
The primary focus of consumer products companies will be on new sales channels, reflecting the growing importance of mobile and ecommerce.
Global M&A expectations more confident than local
Consumer products expectations of global M&A are more confident than local, although neither is expected to return to historic highs.
Of respondents, 72% expect global M&A deal volumes to improve in the next 12 months, but only 2% believe it will return to historic highs.
What is your expectation for M&A/deal volumes in the next 12 months?
Consumer products companies have seen a strong rise in the expected valuation of assets and expect the price/valuation to increase by 16%, while the other sectors expect it to remain at current levels.
The reasons for not doing a deal in the next 12 months include:
- Insufficient acquisition opportunities
- Regulatory environment
- Lack of execution and integration capabilities
- Valuation gap
Bolt on deals up to $500m will continue to dominate M&A activity. Expectation for large deals of above US$1billion has leveled.
Emerging markets are the likely focus of consumer products investments.
China, India and Brazil followed by Columbia and Singapore are the most likely countries to pursue acquisitions.
Regulatory risk and local business governance are considered top obstacles to emerging market consumer products deals.
Overestimating strategic value and unforeseen liabilities have become the primary reasons for deals not meeting expectations
Divestments are becoming a core part of strategy. As more companies have shifted from a stabilization to growth agenda, divestment intentions have normalized.
Our survey shows that 18% of companies are likely to divest in the next 12 months. The top reasons to divest are:
- Focus on core assets
- Enhancement of shareholder value
Companies not pursuing divestments are most concerned about valuation gaps and disruption to the core business. Consumer products companies prefer joint ventures over a sale or spinoff of business units, twice as many as other sectors.
What is your perspective on the state of the global economy today?
Please indicate your level of confidence in the following at the global level
How do you think the boardroom agenda at your company has changed from a year ago?
Cash: primary source of deal financing
What is the primary focus of your company's organic growth over the next 12 months?×
Which are the top five countries (outside your local market) in which your company is most likely to invest?