Consumer products deals quarterly: Q4 12
Deal volumes picked up in the final quarter of 2012, although the level of activity remains below the mid-2011 peak.
Underpinned by the announcement of one megadeal in the food sector, overall transaction value also increased compared with the third quarter.
Activity levels improved in all subsectors, except household and personal care. The volume of both corporate and private equity (PE) deals increased.
Top 10 deals Q4 12
Top 10 deals Q4 12
| Buyer name | Buyer country | Target name | Target country | Disclosed value (US$m) | Announced | Deal type | Sector | Cross-border or In-border |
| ConAgra Foods | United States | Ralcorp | United States | $6,800 | 27 Nov. 2012 | Corporate | Food | In-border |
| AG Barr PLC | United Kingdom | Britvic PLC | United Kingdom | $2,200 | 14 Nov. 2012 | Corporate | Beverages | In-border |
| Diageo PLC | United Kingdom | United Spirits | India | $2,050 | 9 Nov. 2012 | Corporate | Beverages | Cross-border |
| Saputo Inc. | Canada | Morningstar | United States | $1,450 | 3 Dec. 2012 | Corporate | Food | Cross-border |
| Reckitt | United Kingdom | Schiff Nutrition | United States | $1,318 | 15 Nov. 2012 | Corporate | HPC | Cross-border |
| Barry Callebaut | Switzerland | Petra | Singapore | $950 | 12 Dec. 2012 | Corporate | Food | Cross-border |
| Coca-Cola | Japan | Mikuni Coca- | Japan | $492 | 14 Dec. 2012 | Corporate | Beverages | In-border |
| PepsiCo Inc. | United States | WBD | Russian Fed. | $483 | 19 Nov. 2012 | Corporate | Food | In-border |
| Cerveceria | Costa Rica | North American | United States | $388 | 26 Oct. 2012 | Corporate | Beverages | Cross-border |
| Unilever PLC | United Kingdom | Unilever | Pakistan | $330 | 28 Nov. 2012 | Corporate | Food | In-border |
Source: Ernst & Young’s analysis of Thomson Reuters data.
Deal highlights include:
- Deal volumes rise after three quarters of flatlining
Q4 deal volumes increased by 9% to 336 deals from 309 in Q3 12. The four-period long-term moving average of total deal volume, however, continued to decline, dropping from 323 deals to 313 deals. - Total value increasing
Disclosed deal value increased to US$22.6b in Q4 12 from US$17.2b in Q3 12. There was one megadeal, with a value greater than US$5b, in the quarter, and a further four deals each had a value of more than US$1b. - PE activity increases by twice the overall rate of expansion
Corporate deals, representing 82% of total deals in Q4 12, increased to 277 deals from 259 deals in Q3 12. PE deals, from a lower base, increased more than twice as quickly to 59 deals from 50 deals in the previous quarter. - Cross-border activity stable
There were 106 cross-border deals in Q4 12, a decline of three deals from Q3 12. Europe dominated the cross-border deals in terms of volume in Q4 12, both as buyer and as seller. In value terms, North America was the largest seller.
The key themes of the quarter were:
- Deal activity picking up – The improvement in deal volume brought to an end three quarters of flat activity. However, deal volumes remain 27% below the Q2 11 peak in volumes of 462 deals.
In Q4, total disclosed value increased by 31%, rising from US$17.2b in Q3 12 to US$22.6b in Q4 12. This increase was underpinned by the announcement of one megadeal: the acquisition of Ralcorp Holdings by ConAgra for US$6.8b.
Deal volumes Q1 10 to Q4 12
Deal values Q1 10 to Q4 12
- Rapid-growth markets remaining in focus – One of the most consistent themes is the pursuit of scale in rapid-growth markets, which is identified by 40% of consumer products companies as having the greatest potential to deliver their growth objectives.
- Global players also keep the home fires burning – The second recurring theme is consolidation within developed markets to strengthen portfolios, increase scale and target higher-growth segments.
“While consumer products companies understand the vital importance of rapid-growth economies, they can’t afford to place all their bets on these countries because their mature market volumes are so high and contribute so significantly to profitability.”
– David Murray
Global Consumer Products Transactions Leader, Ernst & Young
- Similar themes driving deals by global challengers – Portfolio optimization and expansion into rapid-growth markets are also themes being pursued by global challengers based in the rapid-growth economies. Global challengers are also looking to gain exposure to growing categories in the developed markets.
- Private equity activity increasing – Another facet to the rapid-growth markets expansion theme is that there remains room for private equity firms to pick up consumer products targets that may not yet be ready for the big global players.
Corporate/PE deals
Overall, the level of private equity acquisition activity increased by 18% from 50 deals in Q3 12 to 59 deals in Q4 12, double the increase in the overall level of activity.
- Increasing control – Another recurrent investment theme is for consumer products companies to increase the size of their stakes or buy out the minorities in businesses in which they already have an ownership interest.
- Beverage sector remaining active – In addition to the Diageo and Cerveceria transactions in the top 10 deals, there were further illustrations of ongoing beverage sector consolidation in Q4. Based on the reported comments of beverage company executives, the trend looks set to continue in 2013.
Number and value of beverage deals
Q1 10 to Q4 12
Number and value of beverage deals Q1 10 to Q4 12
Source: Ernst & Young’s analysis of Thomson Reuters data.
- Gradual improvement in activity set to continue – International consumer products groups need to strike a balance between looking internally at how best to optimize their businesses and searching externally for acquisition opportunities.
For many companies, the optimal strategy will involve both pursuing greater efficiency and acquiring competitors. The Q4 volume numbers suggest that the search for those acquisition opportunities is gaining a little momentum and that M&A market activity is forming a base.
This is further supported by our knowledge of client transactions and the deal pipeline for the first and second quarters. We are cautiously optimistic that the gradually improving trend in deal activity will continue in the first half of 2013.