3 minutos de lectura 19 dic 2019
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Consumer products M&A activity remains strong as the upcycle continues

Consumer products executives are feeling confident about their growth potential, but worry that they need to be bolder.

The M&A appetite among consumer products (CP) companies remains strong, as the upcycle continues beyond what many had predicted. Yet despite indications that a majority of CP executives expect increases in sales performance and net margins over the next 12 months, there are signs of future growth challenges ahead, regardless of the trajectory CP companies currently find themselves on, according to the latest EY Global Capital Confidence Barometer.

M&A activity focuses on bolt-ons and capabilities

About half (49%) of CP respondents say they expect their companies to pursue M&A in the next 12 months as they continue to see dealmaking as a key part of their transformation plans. For some, uncertainty around trade and tariffs is fueling M&A ambitions as CP companies focus on smaller deals.

  • Four in 10 CP executives say they are looking to acquire transitional capabilities that will change how the company operates, while a little more than one-third are focusing on bolt-on acquisitions to bolster current business models.
  • One-quarter say they are continuing to pursue transformative deals, but the current trend suggests that CP companies are moving away from megadeals in favor of start-ups that offer the product and process nimbleness larger incumbents see the need to emulate.

In terms of where CP companies are seeking their M&A targets, it is interesting to note that the focus remains on North American and Western European destinations. Not a single BRIC (Brazil, Russia, India and China) country appears in the top five preferred destinations. This may be the result of companies preferring to make early-stage innovative investments “closer to home,” while also being cautious on international acquisitions due to broader geopolitical uncertainty.

M&A survey consumer products sector investment destinations

Divestitures are also playing a key role in dealmaking activity, with 55% saying they are planning to outsource or divest current operations. Also, 44% of them want to offload back-office functions, while 32% say they’re looking to divest production capabilities.

Consumer products executives are feeling confident about their growth potential, but worry that they need to be bolder

M&A isn’t the only indication that CP executives are feeling confident about their growth potential. A majority of CP executives say that sales and margins have improved over the last 12 months; a larger percentage is expecting modest to strong increases in the next 12 months. Meanwhile, confidence in economic growth within the sector continues to improve, with 75% seeing the sector economy as improving (versus 54% a year ago). Further, almost half of CP executives say they don’t expect an economic slowdown in the near to mid term.

However, when we press a little harder, two-thirds of CP respondents agree that it will be more difficult to sustain profitable growth in five years than it is today. Moreover, 71% feel that companies in the sector are too focused on cost cutting at the expense of delivering growth, and a remarkable 84% say that CP companies need to be bolder in the actions they take.

Sustaining profitable growth

84%

of consumer products respondents say that CP companies need to be bolder in the actions they take.

Based on the strategic intent they have for M&A, CP companies appear to be making moves in this direction. However, for a significant majority of respondents, it’s seen as too little and too slow. Within their own organizations, 69% of CP respondents say that their company is adapting to disruptive change, but that the actions are not yet effective enough. Overall compared to a 2016 survey, CP companies have a higher acknowledgement that they need to be bolder, more focused on growth and find more effective responses to disruptive change. Companies that have been bold enough to undertake radical transformations are seeing improvements in organic growth. Companies that started later in their transformation, or didn’t take extreme measures, are still finding their way to growth.

Interestingly, despite the evidence of the advantages of implementing big, bold business transformations, 41% say that they don’t need to make significant changes to their business operations, cost structure or their capabilities. This presents a puzzling question: are these 41% indeed well prepared? Or are they continuing to underestimate the disruption?

Resumen

The EY Global Capital Confidence Barometer (pdf) gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agendas.