Deal activity in the consumer products sector hits a 3 year low in Q4 2009
London 19 February 2010 – Deal value and volume in the consumer products (CP) sector continued to fall in Q4 2009, with deal volumes now at a three year low, according to a new quarterly report from Ernst & Young. Moreover, the number of significant deals already announced this year suggests that the sector may have reached the bottom of the market and that deal volumes will start to recover over the course of 2010.
Consumer Products Deals Quarterly found that although the last quarter saw a lower volume of deals with 169 deals in Q409, compared to 205 in Q309, (down by 18%) and a lower total disclosed value of deals (US$10b in Q409 compared to US$11b the previous quarter), strategic deals are still happening, private equity is active and average deal sizes are holding up. The largest deals in 2009 involved the repurchase by PepsiCo, Inc. of its bottling group (Pepsi Bottling Group, Inc.), for US$5.1b in April 2009, followed by Suntory Holdings Ltd., which acquired Orangina Schweppes SAS for US$3.8b in September 2009. The average disclosed deal size (excluding deals over US$5b to highlight the underlying trend) of US$140m in Q409 was marginally (6%) up on Q309 and 116% above the low-point in the third quarter 2007.
David Murray, Global Consumer Products Transactions Leader says, “Lack of confidence and finance have been holding back activity volumes and slowing the rate of progress on deals across the board. However, as the global recovery continues to improve and credit returns, businesses will look to capitalize on opportunities and we expect mergers and acquisitions to trend upward in 2010 as confidence returns.”
Deals by subsectors
Of the four major CP sub-sectors, only household and personal care (HPC) saw deal volumes increase between Q3 09 and Q4 09. The value of HPC activity stayed steady at US$2.3b; however, the number of deals rose to 28 deals this quarter, compared to 23 deals in Q309.
Lack of activity was most evident in food, which normally dominates the deal landscape. Although deals value rose by 10% from US$3.1b in the previous quarter to US$3.4b in Q4, deal volume fell by 16% to 103 deals in Q409 from 122 deals in the previous quarter.
At US$4.3b, the value of beverages deals in Q409 fell back by 9% against the previous quarter levels of US$4.7b, but this was still the subsector with the greatest value of deals by some margin. Volumes fell by 31% to 37 transactions in Q409 from 54 transactions in Q309.
Europe dominates cross-border deals
Europe accounted for the majority of cross-border deals by both volume and value in Q409. Companies in Europe acquired 25 businesses (37% of deal volume) and sold 24 businesses (35% of deal volume) in Q409. The US and Asia Pacific bought 12 and 10 businesses respectively in the same period and sold 9 (US) and 12 (Asia-Pacific). Although deal volumes in emerging markets still lag those in developed economies by some margin, in part because much of the activity in these centers concerns privately-held or family businesses, Q409 saw 10 deals involving Chinese companies, eight involving Brazilian companies and seven involving Indian companies.
In terms of value, the UK accounted for almost half (46%) of the value of businesses acquired in Q409 with US$2.3b, way ahead of the US (US$1.3b) and Asia Pacific (US$463m) and Europe, excluding the UK (US$351m). However, on the sell-side, European companies dominated the rest of the world with US$3.2b (64% of the value of deals), followed by Asia Pacific US$779m (16%).
Brazil and Russia were the most attractive emerging markets to foreign investors in Q409, with around a third of deals involving the sale of a domestic company to a foreign buyer. Eight deals (seven of which involved food companies) were announced in Brazil in Q409. Six of these deals were cross border. In China and India the majority of deal activity during this period was in-border.
“Even though, we’re still at the early stage of the global recovery, we are hopeful that Q4 09 may well mark the low point in terms of deal activity in the global consumer products sector. The strategic deals announced at the start of the year may have a ‘snowball effect’ encouraging mid-tier and smaller players to make a move. We anticipate that food will see a pick-up in volume – potentially as categories like dairy and baby food, look ripe for consolidation. Tobacco is also a sector to watch as companies seek to diversify their product base and look to make strategic alliances outside the sector” Murray concludes.
- ends -
About the report
Consumer Products Deals Quarterly is based on Ernst & Young’s analysis of FactSet Mergerstat data from Q1 07 to Q4 09. Data was pulled from the FactSet Mergerstat database using standard industrial classification codes.
For the purposes of this paper, our definition of consumer products is only those companies in the food, beverages, tobacco and HPC subsectors.
Deal activity and valuations may fluctuate slightly based on the date that the Factset Mergerstat database is accessed.
About the Global Consumer Products Center
Whether it’s squeezed margins, brand erosion, business complexity or new regulatory requirements, today’s consumer products companies must think differently in order to prosper. Ernst & Young’s Global Consumer Products Center brings together a worldwide team of professionals to help you achieve your potential — a team with deep technical experience in providing assurance, tax, transaction and advisory services. The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues. Ultimately it enables us to help you meet your goals and compete more effectively. It’s how Ernst & Young makes a difference.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.
For more information, please visit www.ey.com.
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.
This news release has been issued by EYGM Limited, a member of the global Ernst & Young organization that also does not provide any services to clients.