A.T. Kearney Consumer and Retail M&A Report: 2017 Deal Volume Down, Set to Increase in 2018
Strategic, Cross-Industry Acquisitions Seen as a Way to New Markets
CHICAGO, April 10, 2018 /PRNewswire/ -- For consumer product and retail companies, 2017 offered more of the steady M&A activity that has characterized the market for the last several years. While deal value dropped from 2016 highs, this will likely be short-lived, according to A.T. Kearney's 2018 Consumer and Retail M&A Report: Can M&A Reignite Growth in Consumer and Retail? In 2017, not accounting for large deals, M&A deal value was a scant 2 percent below the previous year, with activity essentially matching the hot market of 2016.
With the completion of several political elections around the world, and both PE firms and consumer products companies reporting record amounts of cash reserves, the report predicts a rise in global M&A deals, legacy companies increasingly using M&A for growth and innovation, and more outbound deals for the U.S. than there have been, due to rising interest rates.
Based on interviews with C-level retail executives, three-quarters of whom reported that they're using M&A to help their companies acquire new capabilities, expand their product portfolios, access new customers, or increase their geographic reach, the market is characterized by optimism from those at the top—for example, 71 percent of respondents reported that M&A is creating value, up from 48 percent last year.
"While some key trends in the market will become even more entrenched—such as record-high cash reserves and the continued ease of global trade that M&A represents—others will shift," says A.T. Kearney Partner Bob Haas, leader of the firm's global Mergers & Acquisitions Practice and co-author of the report. "Much of the wait-and-see climate we saw in 2017 that has characterized M&A globally has dissipated. At the same time, with interest rates finally on the uptick, we will likely see an increase in U.S. companies making innovative acquisitions to stay relevant."
Several trends support this forecast. Legacy consumer product megadeals such as General Mills' recent acquisition of Blue Buffalo Pet Products point to the pursuit of unique opportunities where industries, new sectors, and new consumers converge. Equally important, convergence deals such as Amazon's acquisition of Whole Foods and Alibaba's launch of grocery chain Hema not only blur the lines between online and physical channels, but pave the way toward more industry-adjacent opportunities.
"In 2017, the EV/EBITDA multiple in North America dipped to 10.4—the lowest multiple we've seen since 2011," notes Bahige El-Rayes, A.T. Kearney principal and co-author of the report. "With valuations softening everywhere except APAC, we've still seen consumer and retail deal activity rising every year since 2009. Uncertainty remains a constant, but it's taking a back seat as traditional retail and consumer companies continue to go after more customers and more revenue. We predict that legacy consumer and retail companies will fight back in 2018 and seek out adjacent and convergent businesses. Winners will be those that understand what consumers prefer and the channels they use, take a holistic view of their industry, and fearlessly pursue innovative, out-of-the-box opportunities."
See A.T. Kearney's full 2018 Consumer and Retail M&A Report online here.
About the Study
A.T. Kearney analyzed more than 100,000 consumer and retail transactions from 2006 through Q1 2018, spanning sectors such as food and beverage, grocery, pharmacy, and personal care. The study also included insights from C-level executives of global consumer and retail companies based on a survey that sought their perspectives on trends in consumer and retail sectors and future M&A activity.
About A.T. Kearney
A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues. For more information, visit www.atkearney.com.
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SOURCE A.T. Kearney
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