Consumer products deals quarterly: Q2 13
In recent quarters, we noted increasing interest among dealmakers in potential acquisitions. The extent of the drop off in deal activity in the second quarter is therefore surprising.
Based on the deal pipeline, all the indicators were in place for a pick-up in deal activity during Q2. Wider market conditions are also broadly supportive:
- Strong debt markets
- Buoyant equity markets
- Signs of improvement in the US IPO market
Against this backdrop, we expect the level of deal activity to improve in the second half of the year.
Data highlights include:
- Deal volume declines, pushing long-term average slightly lower
Q2 deal volumes decreased by 15% to 294 deals from 347 in Q1 13. The four-period long-term moving average of total deal volume decreased slightly from 323 deals to 319 deals.
- Total value decreases sharply, but three megadeals announced
Disclosed deal value decreased to US$30b in Q2 13 from US$40b in Q1, of which the acquisition of Heinz by 3G Capital Management and Berkshire Hathaway represented $28b. There were three megadeals, with a value greater than US$5b in Q2, which accounted for 69% of total disclosed deal value.
- Decline in activity concentrated in corporate food transactions
The number of food deals dropped by 21% from 243 in Q1 to 193 in Q2. Activity in beverages and household and personal care was far more stable. Corporate deals decreased by 17% to 241 deals from 292 deals in Q1. Private equity deals declined to 53 in Q2 from 55 in Q1.
- Americas prominent in top 10 deal activity
Of the quarter's top 10 deals, five were either US or Latin-America based. This included deals where a US-based business was the target in addition to transactions with a US-based acquirer.
- Food and beverages dominate the quarter's top 10 deals
There were four food deals and three beverage deals in the top 10 largest deals in Q2 13. Two were in the household and personal care sector and one was in the tobacco sector. Eight of the top 10 transactions featured corporate buyers and the remaining two were private equity/long-term private investors.
The quarter's top investment themes were:
- Creating new global challengers
The quarter provided two examples of transactions whose rationale is to create a new global challenger. Joh. A. Benckiser took Amsterdam-listed D.E Master Blenders private in an $8.3b (€6.4b) deal, with the aim of challenging for the global number one position in coffee.
China's largest meat processing company, Shuanghui International Holdings, agreed to buy US pork producer Smithfield Foods to extend its geographic reach and secure a supply source.
- Investing further in known businesses
Consumer products companies are investing further in businesses they know well, as a means of limiting risk. This may include increasing the size of their stakes or buying out the minorities in businesses where they already have an ownership interest.
- US underpinning top 10 deals
US companies and US-based transactions are underpinning the top 10 deals in Q2 13. The reasons for this trend are macroeconomic, with the recovery in US growth outpacing other regions, particularly Europe.
Underlying long-term trends
- Pursuit of growth opportunities and scale in emerging markets
Sector analysis demonstrates that the majority of multinational consumer products companies are keen to offset the lower growth potential of mature markets and exploit the long-term shift in economic power toward emerging economies.
The scale of Asia's rapidly emerging middle class makes it the number one opportunity for profitable growth. To meet growing demand in emerging markets, domestic challengers are also building scale and securing raw material supplies.
- Consolidation and portfolio optimization within developed markets
It is still imperative for companies to exploit opportunities in mature markets. Companies are also keen to strengthen brand portfolios, increase scale and target higher-growth segments.
Consumer products groups are using different ownership structures, collaborations and contractual agreements to reduce the financial risks of acquisitions compared with traditional M&A.
- Continued pursuit of health and wellness
A prominent strand of the diversification into new higher-growth/margin product categories is consumer products companies' focus on the acquisition of health and wellness products.
For some businesses, this may mean exiting market segments that are performing less strongly. For others, it is about establishing a presence in the fast-growing health and wellness space.
Top 10 deals Q2 13
|Buyer name||Buyer country||Target name||Target country||Disclosed value (US$m)|| Announced |
|Deal type||Sector||Cross-border or In-border|
|Oak Leaf BV||Netherlands||D.E Master Blenders 1753 BV||Netherlands||$8,279||28 Mar 2013||PE||Beverages||In-border|
|Shuanghui Intl Hldg Ltd.||China||Smithfield Foods Inc.||United States||$7,100||29 May 2013||Corporate||Food||Cross-border|
|Unilever PLC||United Kingdom||Hindustan Unilever Ltd.||India||$5,443||30 Apr 2013||Corporate||HPC||Cross-border|
|JBS SA||Brazil||Marfrig Alimentos-Seara Brasil||Brazil||$2,744||10 Jun 2013||Corporate||Food||In-border|
|Rhone Group LLC||United States||CSM NV-Bakery Supplies||Netherlands||$1,350||25 Mar 2013||PE||Food||Cross-border|
|Philip Morris Intl Inc.||United States||Philip Morris Mexico SA de CV||Mexico||$700||21 May 2013||Corporate||Tobacco||Cross-border|
|China Huiyuan Juice Group Ltd.||China||China Huiyuan Ind Hldg Ltd.||China||$660||23 May 2013||Corporate||Beverages||In-border|
|Coca-Cola HBC AG||United Kingdom||Coca-Cola Hellenic Bottling Co.||Greece||$370||17 May 2013||Corporate||Beverages||Cross-border|
|Mitsubishi Corp.||Japan||Kirin Kyowa Foods Co. Ltd.||Japan||$320||18 Mar 2013||Corporate||Food||In-border|
|Domtar Corporation||Canada||Associated Hygienic Products||United States||$272||28 May 2013||Corporate||HPC||Cross-border|