Consolidation and rationalization of assets are set to be the main focus of mergers and acquisitions (M&A) activity for the consumer products sector over the next 12 months. This is according to a Deloitte survey of executives at major European consumer product companies. 21% of respondents said that consolidation would be the most significant factor driving M&A. The main factor was delivering good value to shareholders while focusing on core markets. The survey revealed that the obstacles to M&A activity, as expressed by the executives, were economic uncertainty (33%), gaps between the expectations of buyers and sellers (26%) and shareholder or director caution (18%).
Dip in deal activity
In 2011, the global M&A market totaled £1.37 trillion, although activity dipped in the second half of the year, indicating a renewed sense of caution and prioritization of cash revenue and containment. The dip in deal activity was particularly noticeable in the eurozone. At a time of spinoffs and post-merger acquisitions across the whole economy, the survey reflects the issues affecting the market place – attributed to a lack of organic growth opportunities, principally affecting those companies who focus on their domestic market.
Downturn in consumer confidence
For consumer product companies, particularly in the US, a downturn in consumer confidence has challenged growth models, and executives looking at top-line growth have had to adjust their predictions. The more optimistic outlook shows that some international companies have increased the proportion of revenue generated overseas from the sale of consumer products. Many have diversified into growth markets. Some notable examples of this include the targeting of the rapidly developing BRIC economies, and even further afield, more specifically Heineken’s acquisition of breweries in Ethiopia, Electrolux in Chile, and expansion into Turkey by Diageo and SABmiller.
Consumer product producers have also had to demonstrate flexibility in managing costs. For those who have not been able to diversify into international markets, the next 12 months is set to be characterized by a phase of consolidation, as they divest themselves of brands to focus on market-specific products. Since 2010, consumer products companies have been looking at M&A to gain strategic access to new markets and deliver shareholder value.
Tags: acquisitions , Beyond Brics , BRICs , consumer , consumer products , Deloitte , domestic growth , global growth , growth , M&A , M&A activity , merger arbitrage , Mergers and Acquisitions , organic growth , shareholders