EY - Consumer products deals quarterly: Q1 14

Consumer products deals quarterly: Q1 14

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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.

Deal volumes Q2 11-Q1 14

EY - Deal volumes Q2 11-Q1 14

Deal values Q2 11-Q1 14

EY - Deal values Q2 11-Q1 14

  • 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.

Top 10 deals in Q1 14

EY - Top 10 deals Q1 14


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:

  1. Know your core business
  2. Make better-informed decisions
  3. Take action

Download the full report for more.



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
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
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
Monkey Food
China $584 19 Dec 2013 Corporate Food Cross-border
Hain Celestial
Group Inc.
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

Deal volumes Q2 11-Q1 14

EY – deal volumes Q2 11-Q1 14

Deal values Q2 11-Q1 14

EY – deal values Q2 11-Q1 14