Return of the mega-deal drives increase in global consumer products deal values

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  • Pursuit of growth opportunities in rapid growth markets and Japanese acquisitions in developed markets increase activity

LONDON, 08 August 2012. While consumer products (CP) deal volumes decreased by more than a third during the first six months of 2012, compared with the same period in 2011, the value of deals jumped by 11%, buoyed by a small number of high value deals in Q2 2012, according to David Murray, Global Consumer Products Transactions Leader at EY today.

Murray comments, “During 2012 it has been interesting to see that despite the significant decline in deal volume, the appetite for mega-deals is still there.

“This is a positive outlook for the CP sector with boards prepared to complete large deals despite on-going market uncertainty. CP companies are acquiring businesses for cash, increasing their exposure to rapid growth markets where possible and also playing to their strengths in existing categories within their heartlands.”

Two mega-deals, a term applied to deals over US$5.0b, contributed to a top ten deal value of US$46.4b for H1 2012, which represents 79% of total disclosed deal value for the period. The largest deal was AB InBev’s purchase of the remaining 49.7% stake it did not already own in Grupo Modelo for US$20.1b. The second largest deal was Nestlé’s acquisition of Pfizer’s infant nutrition division for US$11.9b. There were two additional deals over US$2.0b with Molson Coors Brewing acquiring Starbev from CVC Capital Partners Ltd, for US$3.5b, and Kellogg’s acquiring the Pringles business of Procter & Gamble for US$2.7b.

Expansion into rapid growth markets driving deal activity
The dominant theme in Q2 2012 was the pursuit of growth opportunities in rapid growth markets. The economies of the developed world continue to struggle in the aftermath of the global financial crisis and in this environment CP groups can expect very little, if any, growth from mature markets in the next few years. Underlying this cyclical component is the long-term shift in economic power towards the rapid growth markets, and the accompanying creation of a new middle class of consumers. Of the quarter’s top ten deals, five have a rapid growth market rationale, including both of the mega-deals.

Consolidating in developed markets
The second quarter also provided examples of another significant investment theme - consolidation within developed markets to strengthen brand portfolios and increase scale. Japanese CP groups continue to be active in overseas acquisitions in developed markets, leveraging the strength of the yen and taking advantage of the fact that, in relative terms, Europe is a higher growth region than Japan.

Private equity deal volume down significantly in H1 2012 over H1 2011
Private equity (PE) deal volumes declined sharply in H1 2012, falling by 61% compared with H1 2011. PE activity declined by more than overall deal volume and corporate deals therefore represented a larger share of total deals in H1 2012, rising to 85% compared with 73% in H1 2011. All of the deals in the top ten were corporate deals, with disclosed values ranging from US$805m to US$20.1b.

Murray comments, “While private equity does not feature in the top ten as a buyer, we should not lose sight of the fact that private equity was the seller in three of the deals as many firms have portfolios that need turning over.”

Disclosed value of cross-border deals up 20% as deal volumes drop 33% 
There were 208 cross-border deals during H1 2012 compared to 311 deals during H1 2011. Europe dominated deal activity, accounting for 49% of buyer regional volume and 51% of seller region volume. However, Europe’s share of seller region value dropped sharply, declining from US$23.3b in H1 2011 to US$9.9b in H1 2012, reducing its share from 59% to just 21%.

North America was the most prolific individual deal-making market in the H1 2012 with 105 deals, or 17.2% of total deal volume (cross-border and in-border combined). Japan, which has also been active, based partly on the strength of the yen, was a distant second with 43 deals (7.1% of total deal volume).

Cautious optimism 
Looking ahead to the outlook for the rest of the year, Murray suggests, “From the deals announced during Q2 and from our knowledge of on-going due diligence work by our corporate clients, we are cautiously optimistic that the bottoming out process in deal activity will continue into the latter half of the year.

“This quarter provides ample evidence of the willingness of global CP groups, who are becoming accustomed to living in a ‘new normal’ of increased volatility, to look beyond the short-term uncertainty and take the strategic decisions necessary to access growth opportunities.”

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