Consumer products deal activity reaches a tipping point in Q1 2010
- Deal volumes up by 33%, deal values rose by 334% on Q4
- Mid market and PE to drive future deal activity
London, 24 May 2010 – Deal value and volume in the consumer products (CP) sector rose dramatically in Q1 2010, with deal volumes up by 33% and value by 334%, compared with Q4 2009, according to an Ernst & Young transactions report. Companies’ recent increased focus on consolidating their global position as they seek to achieve volume growth explains much of the recent sector activity.
Consumer Products Deals Quarterly reveals that total deal value is up by an impressive 334% to US$43.2b from US$10b in Q4 2009, with five deals above US$1b – the largest deal being the acquisition by Kraft Foods, Inc. of Cadbury Plc. for US$19.2b. Deal volumes were also up by 33%, with 224 announced deals compared with 169 deals in Q4 2009, suggesting that not only confidence is returning amongst investors, but more deals are happening at the mid market level. Furthermore, with 40 deals, private equity (PE) deals were up by 111% against Q4 2009, suggesting that PE companies are selling assets and actively looking for new ones to create further value.
David Murray, Global Consumer Products Transactions Leader says, “In the current market, many consumer products companies are focusing on growth and looking to diversify by building scale in faster growing markets to counteract stagnation in their domestic markets. As interest rates remain low and earnings are on the rise, there is more pressure from external stakeholders for both PE and corporate to make transactions. Therefore, we expect that volumes will rise as PE players will look to re-load their balance sheets in readiness for 2011.”
Deal value and volume by geographies
Last quarter, the US dominated cross-border deal value for the first time since Q1 2007, accounting for 54% of cross-border buy-side value, primarily mainly due to the scale of the Kraft/Cadbury deal.
In terms of cross-border volumes, Europe (excluding the UK) dominated the global picture in acquiring 46 businesses (a 45.3% increase sequentially) and sold 37 (up by 35%), while the US bought 13 and sold 14 businesses, and Asia Pacific bought 14 and sold 13 businesses,.
“We have noticed differences in trends for sell-side deals in 2010r. Around 45% of Western European sell-side deals were bought by other Western European companies. Some of these deals have been driven by the recession, exposing weaker players; other deals were driven by the sector consolidation. Other trends involved overseas companies acquiring US businesses, such as Nestlé’s acquisition of Kraft’s pizza business and Shiseido’s purchase of Bare Escentuals,” continues David Murray.
Deals by subsector
Q1 2010 saw the food subsector making its return both in terms of deal volume and value. Food had 143 deals in Q1 2010, an increase of 40 (39%) on Q4 2009, with total deal value of US$26.6b, a staggering 695% increase, compared to the US$3.4b in Q4 09. previous quarter. Although the number of beverage deals has increased by 27% with 47 deals announced in Q1 2010, this subsector is still below its normal level of transaction activity that characterized 2007 and 2008.As the market continues to consolidate, we expect volumes to trend upward in the second half of 2010. The largest beverage deal was the acquisition by Heineken of FEMSA Cerveza SA for US$7.6b. Meanwhile, the HPC subsector deal value increased US$2.3b to US$3.4b, up by 51%.The most important deal was Shiseido’s acquisition of Bare Escentuals for US$1.7b.
Future outlook
Murray concludes, “As predicted, the first quarter of 2010 has seen an increase in the number of deals, generating the highest transaction value in the consumer products industry since Q2 08. In Q2 10, we expect another strong quarter, especially in the food subsector, as there is plenty of activity planned and generally pipelines are already looking full. Although, we see no mega deals on the immediate horizon, strategic deals are back and the mid-market and PE are ready to move.”
About the report
Consumer Products Deals Quarterly is based on Ernst & Young’s analysis of FactSet Mergerstat data from Q1 07 to Q1 10. 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 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.
Ernst & Young expands its services and resources in accordance with clients’ needs throughout the CIS. 3,400 professionals work at 16 offices throughout the CIS in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi, Yerevan, and Minsk.
For more information, please visit www.ey.com.