Consumer products deals quarterly: Q1 14
While dealmakers remain confident in an economic recovery, the rationale for consolidation in the consumer products sector continues to be compelling.
Organic growth in many mature market sectors has become challenging, and companies need to pursue acquisitions to grow the top line.
“Portfolio optimization is an important recurring theme in the consumer products industry, and many of the larger players are selling businesses and brands that they no longer consider core.”
– Gregory J. Stemler, Global Consumer Products Transaction Advisory Services Leader, EY
However, companies are concerned about slowing growth in emerging market economies and the risk of political instability. In the West, pressure from activist shareholders is underpinning a renewed focus on operational efficiency.
At the same time, the serial acquirers — companies that combine both financial strength and acquisition know-how — are putting more capital to work. This is illustrated by the announcement of three megadeals this quarter, and we expect more megadeals in the next two quarters.
Data highlights for Q1 14 include:
- Deal volumes remarkably stable
First-quarter deal volumes increased by a modest 2% to 287 deals from 281 in Q4 13. The four-period long-term moving average of total deal volume decreased from 302 deals to 287 deals.
- Total value quadruples, with three megadeals announced
Disclosed deal value surged to US$41b in Q1 14 from US$9b in Q4 13. There were three megadeals, with a value greater than US$5b, announced in the first quarter. Six deals had a value of more than US$1b.
- Corporate transaction volumes rise, but private equity activity declines
The balance between corporate and private equity transactions within total deal volume was also very stable. Corporate deals rose by 3% from 229 to 236 transactions (82% of total deal volume), while private equity deals fell by just 1 deal to 51 deals (18% of total deal volume).
- Renewed beverage consolidation in the spotlight
The four biggest deals in Q1 14 were split evenly, with two from the household and personal care sector and two from the beverage sector. The remaining top 10 deals were all in the food sector, with disclosed values ranging from US$340m to US$2.6b.
- Top 10 deal activity dominated by acquisitions in developed markets
Of the quarter’s 10 largest acquisitions, seven involved a target company in a developed world market. The remaining three deals involved targets in Asia — China, South Korea and Singapore.
Notable investment themes in Q1 14
- Heightened uncertainty prompting boardroom caution
Consumer products executives remain confident in the global economy and in the availability of credit, according to the latest EY Capital Confidence Barometer (CCB). However, over the next 6 to 12 months, political instability and slowing growth in emerging markets are perceived as the most important economic risks.
In the face of this uncertainty, greater caution is evident in the boardroom. Companies are expected to continue their cautious approach on capital allocation, with operational efficiency and distributions to equity stakeholders potentially creating better ROI than acquisitions.
- Serial acquirers putting more capital to work
The serial acquirers and disposers of businesses are currently the most active dealmakers. The first quarter’s top 10 deals contain many familiar names.
Even among the strongest companies, which are undertaking large acquisitions, there is a clear tendency toward focusing on areas and businesses that are already well known to the acquirer in order to reduce the risks involved.
The first quarter was also notable for the number of deals where the acquirer moved into a new geographic area within developed markets and generally within familiar categories.
- Activist shareholders making their presence felt
According to the CCB, shareholder activism is prompting action in boardrooms. Shareholder activists typically focus on organizations with:
- High expense ratios
- Multiple, disparate and sometimes non-core operating units
- A poor history of capital allocation
The boardroom response has been to:
- Focus on operational efficiency (cost reduction)
- Spinoffs of non-core units through strategic divestments
- Returning capital through buybacks and dividends
- Portfolio optimization trend continuing
Companies are reshaping their businesses in pursuit of a more optimal brand portfolio and geographic market exposure, both by disposing of non-core and lower-growth units and by acquiring faster-growing and/or higher-margin businesses.
Part of the reason that deal volumes haven’t picked up is that there are insufficient acquisition opportunities. The equity valuation gap between buyers and potential sellers is one explanation for this scarcity of suitable candidates, but it may also be because the current owners simply do not wish to sell.
Spotlight on corporate divestment
For many businesses, divestments are now a fundamental part of their strategy, and leading companies are bringing the same rigor to selling assets as they do to acquisitions. Companies can create shareholder value by regularly assessing whether each business unit in their portfolio is contributing to strategic goals and long-term growth.
Our recent Global Corporate Divestment Study, based on interviews with 720 corporate executives, provides empirical evidence that strategic portfolio management leads to more effective divestment outcomes.
The study analyzes leading approaches to portfolio review and divestment and identifies three leading practices for companies to improve their strategy:
- Know your core business
- Make better-informed decisions
- Take action
Top 10 deals Q1 14
|Buyer name||Buyer region||Target name||Target country||Disclosed value (US$m)|| Announced |
|Deal type||Sector||Cross-border or In-border|
|Suntory Holdings||Japan||Beam Inc.||United States||$13,933||13 Jan 2014||Corporate||Beverages||Cross-border|
|L’Oréal SA||France||Nestlé SA||Switzerland||$8,200||11 Feb 2014||Corporate||HPC||Cross-border|
| Anheuser-Busch |
|Belgium|| Oriental |
Brewery Co. Ltd.
|South Korea||$5,800||20 Jan 2014||Corporate||Beverages||Cross-border|
|Nestlé SA||Switzerland||Galderma Pharma SA||Switzerland||$3,730||11 Feb 2014||Corporate||HPC||In-border|
| Temasek |
|Singapore||Olam International Ltd.||Singapore||$2,620||14 Mar 2014||PE||Food||In-border|
|Grupo Bimbo SAB de CV||Mexico||Canada Bread Co. Ltd.||Canada||$1,664||12 Feb 2014||Corporate||Food||Cross-border|
|Aryzta AG||Switzerland|| Cloverhill Pastry-Vend |
|United States||$673||10 Mar 2014||Corporate||Food||Cross-border|
|Hershey Co.|| United |
| Shanghai Golden |
|China||$584||19 Dec 2013||Corporate||Food||Cross-border|
| Hain Celestial |
|United States||Tilda Ltd.||United Kingdom||$358||13 Jan 2014||Corporate||Food||Cross-border|
|Aryzta AG||Switzerland||Pineridge Bakery Inc.||Canada||$340||10 Mar 2014||Corporate||Food||Cross-border|