Global consumer products deals to level off in 2011, despite strong growth in 2010
London, 17 February 2011 – The total value of disclosed consumer products (CP) M&A deals announced in 2010 reached US$101.6 billion globally, compared with US$45.7b in 2009 – a 122% increase, according to Ernst & Young’s Consumer Products Deals Quarterly. Overall, 1,128 deals were announced in 2010, compared with just 818 deals in 2009 – up by 38%. With 356 global deals, the fourth quarter was not far short of the Q2 2007 peak of 376 transactions, with a value of US$24.7b.
David Murray, Global Consumer Products Transactions Leader at Ernst & Young comments, “At the start of 2010, consumer products companies faced an environment in which signs of economic recovery were still tentative and the outlook uncertain. While we gauged the direction of the market correctly, the continuing upward trend at the end of the year exceeded our expectations.”
Food sector deals accounted for 50% of the top 10 deals in 2010
The vast majority of the year’s top 10 deals had values in the US$3b-5b range, with the food sector accounting for half of the transactions. US-based companies were present, as buyers in 5 deals and as sellers in 5 deals. Three of the top 10 largest deals in 2010 occurred in Q4 10. Of the four major consumer products sub-sectors, food continues to provide the bulk of deal volumes. Building on the previous quarter, the food sector saw the highest level of deals (234 deals) since 2008. The total disclosed deal value of food deals was US$16.3b, an increase of US$7.49b (85%) on the previous quarter.
PE joins the mega-deal league
For the first time in 2010, the fourth quarter’s biggest deal involved private equity. With an enterprise value of US$5.3b, the purchase of Del Monte Foods by a KKR/Vestar Capital Partners/Centrerview Partners consortium also edged into the mega deals category .
Continues Murray, “While Del Monte does have some private label capability, I believe that KKR’s acquisition is more about the growth potential of pet products. KKR’s deal fits into the category of pursuing higher growth segments in the developed world.”
Emerging markets fuel transactions activity
Throughout 2010 Ernst & Young analysis shows strong interest from developed market companies in emerging markets where the focus is on reaching the next one billion customers. However, an equally strong trend is apparent in the opposite direction as developing market players start to take their place on the global stage. In Q410 this was evidenced by Mexican company Grupo Bimbo buying Sara Lee’s North American bakery business. The quarter also evidenced another theme – emerging markets companies becoming more active within their own and other emerging markets as shown by Noble Group’s acquisition in the fourth quarter of Brazilian sugar mills from Cerradinho.
There is also a trend for emerging market companies to buy out financial or overseas owners of companies in their domestic markets. In Q4 10, transactions involving BRIC countries increased by 35%, from 63 to 85 deals. For the year as a whole, the total volume of BRIC deals reached 254 – almost double 2009’s total of 128 transactions. In-border deals were the key driver, up 174% on 2009 figures.
Highest level of HPC deals in three years
Household and personal care (HPC) also performed strongly in 2010 with a 52% increase in deal volumes compared to Q3 10. This is the highest level of HPC deals in any quarterly period in the last three years. However, HPC disclosed transaction value fell to US$3.56b in the quarter - a 63% decrease on the previous quarter. The beverage sector was also up significantly on the prior quarter at 77 deals, 35% higher and had a disclosed market value of US$4.9b.
Prospects for 2011
Concludes Murray, “As we enter 2011, we remain positive, following two successive quarters of approximately 20% growth in volumes. However, we believe many companies will adopt a more cautious approach, and the level of deal activity will level off in the next few months. While dealmakers are still seeking 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.”
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About the report
Consumer Products Deals Quarterly is based on Ernst & Young’s analysis of FactSet Mergerstat data from Q1 2008 to Q4 2010. 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. For this edition (and in future), we have reorganized the data so that it can be segmented globally into three regions (Europe, Asia Pacific and the Americas). All data in the charts from previous quarters reflect this change. Please note that data in the charts in previous editions were segmented in a slightly different way and some of the numbers are likely to different.
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