Consumer products deals quarterly: Q3 13
Pent-up deal momentum
Despite the surprisingly flat trend in deal volumes recorded in the third quarter, the high level of activity among our clients gives us confidence that there will be a stronger finish to the year in terms of transaction volumes.
The number of inquiries continues to grow, engagements are rising and our deal advisory teams are busy — even more so now than at the end of the second quarter.
The quarter’s largest consumer products deal was the US$2.1b purchase by Suntory Beverage & Food of the Lucozade and Ribena soft drinks brands from GlaxoSmithKline. This deal illustrates the continuing drive by global consumer products groups to optimize portfolios by focusing on core, higher-growth businesses, and is one of the quarter’s notable investment themes.
Data highlights include:
- Deal volumes decline slightly pushing long-term average lower
Third quarter deal volumes decreased by 3%, from 294 deals in Q2 to 285. The four-period long-term moving average of total deal volume decreased slightly from 319 deals to 311 deals.
- Total value halves, with no megadeals announced
Disclosed deal value decreased to US$15b in Q3 from US$30b in Q2. There were no megadeals with a value greater than US$5b announced in the third quarter, and only four deals had a value of more than US$1b.
- Corporate transaction volumes decline, but private equity activity rises
The number of corporate deals dropped by 8% from 241 in Q2 to 222 in Q3, which represented 78% of total deal activity. In comparison, private equity deals increased to 63 in Q3 from 53 in Q2, a rise of 19%. Private equity deal volume represented 22% of total volume, the highest portion since Q4 2011.
- Emerging markets prominent in top 10 deal activity
Despite the current slowdown, emerging markets remain high on the agenda. Of the quarter’s top 10 deals, a Latin American-based target featured in four of the transactions. Of the remaining top 10 deals, a further three featured a China/Hong Kong-based target.
- Large household and personal care deals on the rise
There were four food deals and three beverage deals in the top 10 largest deals in Q3 13. The remaining three top 10 deals were in the household and personal care sector, with disclosed values ranging from US$660m to US$1.2b.
The quarter's top investment themes were:
- Private equity more active
The number of private equity transactions increased to 63 deals in Q3 from 53 in Q2, a rise of 19%. We expect this increase in activity will persist in the coming quarters.
The financial market backdrop is also supportive of increased private equity activity. Debt markets are now at their strongest since 2007. Equity markets have rallied strongly and there are signs that IPO sentiment is becoming more positive.
One focus area for private equity is the potential to acquire excess assets in the European and US food sectors.
- Portfolio optimization underpinning deal activity
Companies are seeking to enhance performance and refine geographic exposures by disposing of non-core and lower-growth units and acquiring faster-growing and/or higher-margin businesses.
The quarter’s biggest deal, Suntory Beverage & Food’s purchase of the Lucozade and Ribena brands from GlaxoSmithKline, represents portfolio optimization for both buyer and seller.
- Household and personal care back in the spotlight
While the number of food and beverage deals declined in Q3, the household and personal care sector bucked the trend with a solid increase in activity from 33 deals in Q2 to 46 in Q3, including three in the top 10 transactions.
As disposable incomes rise and urbanization continues, emerging market consumers spend more on personal care products and also household products for their new urban homes.
Against this backdrop, household and personal care groups are looking to acquire local brands and use the acquired companies as a platform to leverage the rest of their portfolio into high-growth markets.
Underlying long-term trends
- The pursuit of growth opportunities and scale in emerging markets
Emerging markets are at an inflection point. It is no longer enough for consumer products companies to focus on growing revenues and capturing market share in emerging markets. These markets must now become engines of profitability and growth.
Our forthcoming report Profit or lose identifies eight business imperatives that consumer products companies need to concentrate on to achieve profitable growth. Among these is the need to address the diversity of emerging markets by shaking off mature market mindsets and operating models, disrupting traditional approaches and rebuilding the offering around what is needed to be locally relevant.
- Consolidation within developed and emerging markets
Companies are keen to strengthen brand portfolios, increase scale and target higher-growth segments. While emerging markets are expected to continue to provide the main engine of future growth, the sheer scale of consumer products groups’ exposure to developed markets makes it vital that opportunities in these regions are also fully exploited.
Top 10 deals Q2 13
|Buyer name||Buyer country||Target name||Target country||Disclosed value (US$m)|| Announced |
|Deal type||Sector||Cross-border or In-border|
|Suntory Beverage & Food||Japan|| GlaxoSmithKline |
|United Kingdom||$2,119||09 Sep 2013||Corporate||Beverages||Cross-border|
|Coca-Cola FEMSA SAB de CV||Mexico||Spaipa SA Bebidas||Brazil||$1,855||31 Aug 2013||Corporate||Beverages||Cross-border|
|China Mengniu Dairy Co Ltd||China||Yashili Intl Hldg Ltd||China||$1,606||18 Jun 2013||Corporate||Food||In-border|
|Svenska Cellulosa AB SCA||Sweden|| Vinda International |
|China||$1,115||09 Sep 2013||Corporate||HPC||Cross-border|
|L'Oreal SA||France|| Magic Holdings |
|China||$843||15 Aug 2013||Corporate||HPC||Cross-border|
|Grupo Empresarial Antioqueno||Colombia|| Tresmontes |
|Chile||$758||18 Jul 2013||Corporate||Food||Cross-border|
|Revlon||United States||The Colomer Grp Participations||Spain||$660||05 Aug 2013||Corporate||HPC||Cross-border|
|China Fishery Group Ltd||China||Copeinca ASA||Peru||$647||24 Jun 2013||Corporate||Food||Cross-border|
|Pinnacle Foods||United States||Unilever-Wish-Bone Salad||United States||$580||12 Aug 2013||Corporate||Food||In-border|
|Embotelladora Andina SA||Chile||Cia de Bebidas Ipiranga||Brazil||$566||10 Jul 2013||Corporate||Beverages||Cross-border|