Consumer Products Transactions Insights - Q4 2015

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Record year for consumer products deals

The last quarter of 2015 concluded a record year for the consumer products industry, as the long-predicted mega-merger of Anheuser-Busch InBev and SABMiller came to fruition.

The dominant themes of Q4 continued those seen throughout the year as a whole:

  • Strategic acquisitions driving scale and margin
  • Divestment of non-core assets enabling more focus on strengths
  • Investment in mature markets in preference to emerging markets
  • Shareholder pressure on management to take bold steps on portfolio optimization
  • Focus on health and wellness
  • Strategic acquisitions driving scale and margin

    Throughout the year we saw large players enhancing their category positions. The largest example was in beer with the $109b takeover of SABMiller by AB InBev - a deal which delivers not just scale but synergies of platform capability and routes to market.

    One of the ripple effects was the sale of SABMiller’s 58% ownership stake in MillerCoors JV back to Molson Coors for $12b. The highly anticipated move, provided to Molson Coors under the terms of its JV agreement, will likely pacify US regulators. Molson Coors expects the purchase to deliver scale and costs benefits.

    AB InBev’s thirst for growth also saw it acquire four craft brewers during Q4: Four Peaks, Breckenridge and Mad Anthony in the US, and Camden Town in the UK. There were a total of 40 beer takeovers in 2015, compared to 22 in 2013.

    Many of the beer deals focused on craft brewers, showing how tempting their fast-growth potential is to the established players. The $1b acquisition of Ballast Point Brewing & Spirits by Constellation Brands marked a new high for a craft beer transaction.

    In coffee, an investor group led by JAB Holding Company and strategic minority investors including Mondelēz International agreed to pay $13.9b for Keurig Green Mountain, maker of single-serve brewing systems. The deal marks a shift into platforms for JAB, allowing it to find new ways into consumers’ homes.

    Meanwhile in the household and personal care sector, Newell Rubbermaid and Jarden combined to create an expansive $16b portfolio of consumer goods that seeks a further scale-up of cost savings, complementary portfolios and retail presence. This merger model has helped Newell’s shares more than double over the past five years.
  • Divestment of non-core assets enabling more focus on strengths

    Throughout 2015 we saw companies offloading assets that were no longer of value to them, but were highly significant for others looking to build their position or venture into new areas – frozen food being one example. In Q4 2015, ConAgra continued this trend when it sold the bulk of its underperforming private label unit Ralcorp to TreeHouse Foods for $2.7b.

  • Investment in mature markets in preference to emerging markets

    The latest EY Global Divestment Survey indicates that companies are turning their focus towards mature markets in their hunt for M&A opportunities. The share of targets in the US among the top 50 deals almost doubled, from 18% in Q4 2014 to 30% in Q4 2015.

  • Focus on health and wellness

    Snyder’s-Lance snapped up Kettle Brand potato chips maker Diamond Foods for $1.9b. This strengthens its position in the faster-growing categories of artisan, high-quality snacks and better-for-you items such as nuts.

Questions for 2016

Will scale pay off for food giants?
In the food sector, the big question is whether achieving huge size can lead to sustainable competitive advantage. It is a question that no one has yet answered and is currently being tested by some of the behemoths of the sector.

More snacks on the menu?
Eating habits have changed, as consumers shift toward “grazing” and away from more formal meals. But there is a nuance to this behavior, with shoppers opting for snacks that they perceive as having real-food values or health benefits. Brands with this dimension are likely to catch the eye of purchasers in 2016.

Have organic companies lost their savor?
Now that organic products have become mainstream, organic companies may no longer be the flavor of the month. They are struggling to grow, and share prices are falling, so they may become acquisition targets.

Is now the time to buy in emerging markets?
Although in 2015 mature markets attracted more deal activity, emerging markets look increasingly attractive. This was underlined in Q4 2015 by Coty’s $986m purchase of Brazilian conglomerate Hypermarcas’ beauty business, a deal enhancing Coty’s distribution capabilities in this fast-growing region, ahead of the completion of its multi-billion dollar acquisition of 41 P&G beauty brands. These fast-growing markets cannot be ignored and look increasingly appealing as asset values begin to come down.

Is it time for an exit?
CEOs are under mounting pressure to turn their businesses around. We are likely to see more companies making the difficult decision to exit a category and shed peripheral assets.