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Consumer Products Deals Quarterly, October-December 2010 - Recovery still building? - EY - Global

Consumer Products Deals Quarterly, October-December 2010

Recovery still building?

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Deals announced Q4 10 Q3 10 Sequential change (%) Q4 10 Q4 09 Year-on-year change (%)
Corporate deals by subsector
Beverages 70 46 52% 70 33 112%
Food 202 161 25% 202 94 115%
Household and personal care (HPC) 41 24 71% 41 22 86%
Tobacco 1 - - 1 1 0%
Total 314 231 36% 314 150 109%
PE deals by subsector
(based on seller sector)
Beverages 7 11 –36% 7 4 75%
Food 32 53 –40% 32 9 256%
HPC 3 5 –40% 3 6 –50%
Tobacco - 1 - - - -
Total 42 70 –40% 42 19 121%
Total consumer products (CP) deals bysubsector, corporate and PE
Beverages 77 57 35% 77 37 108%
Food 234 214 9% 234 103 127%
HPC 44 29 52% 44 28 57%
Tobacco 1 1 0% 1 1 0%
Total 356 301 18% 356 169 111%

"For the largest global consumer products players, emerging markets are a vital component of their expansion plans, but they are an additional rather than an alternative source of growth."
Andrew Cosgrove,
Lead Analyst,
Consumer Products

Summary: Deal activity in global consumer products continued to increase in the fourth quarter of 2010, with all sectors (except tobacco) showing an increase in deal volume. While we remain positive about 2011's outlook, we expect a leveling off of activity.

Data highlights of Q4 2010

Deal volume continue to rise: Deal volume continued to rise in Q4 10, with an increase of 55 deals (18%) compared with the previous quarter, with all sectors (other than tobacco) showing an increase in deal volume in the quarter. In fact, deal volumes are now at their highest level in the last two years. Looking at the year in total, there were 310 more deals in 2010 than in 2009, an increase of 38%.

Corporate deal activity outpaces PE: Corporate deals continue to rise, with 314 deals in the quarter; this represents an increase in the rate of growth in corporate deals from the low of 150 deals in Q4 09. Corporate deals increased by 83 (36%) deals, while PE deals decreased by 28 (40%) deals in Q4 10.

Total and average deal value increasing: The total disclosed deal value was US$24.77b for the quarter, an increase of US$2.29b (10%), driven both by a higher number of deals and a higher average disclosed deal value for such transactions. The average disclosed deal value increased by 3% from US$174m in Q3 10 to US$179m in Q4 10.

Megadeals are reappearing: : There was one megadeal (with a value greater than US$5b) in the quarter — the US$5.3b purchase of Del Monte Foods by a PE consortium comprising KKR, Vestar Capital Partners and Centerview Partners. The last time a megadeal was included in the results was in Q1 10 (the Kraft acquisition of Cadbury and Heineken's purchase of FEMSA).

Pace of deal activity increasing in HPC: : Proportionally, the HPC sector experienced the largest increase in deal numbers: 52% (15 deals). Q4 10 also saw transaction activity increase by 20 deals in the food sector (a 9% increase) and by 20 deals in the beverage sector (an increase of 35%).

Subsector deal breakdown, Q4 10

Pace of deal activity to level off in 2011

While we maintain a positive view on the M&A outlook in 2011, we don't expect to see an increase in deal activities compared with Q4 10.

The economic outlook remains highly uncertain, and companies must also contend with the continuing pressure on margins from rising oil and food commodity prices. While deal-makers are as busy as ever assessing investment opportunities, there are a significant number of deals that are failing to receive the go-ahead from the acquirer's board, for a variety of strategic and valuation reasons. In less uncertain economic times, we believe that a greater number of such deals might make it to completion stage.

Analysis of Q4 2010 consumer product deals

In this report, we've outlined an analysis of the consumer products Q4 10 deal environment across the following topics:

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