Many retailers and consumer products companies, seeking to respond to disruptive changing consumer behavior, have been on an M&A binge.
Deal activity in the US retail and consumer products space in Q1 2017 reached its highest level in the past 10 years, totaling 393 announced transactions that are valued at a combined $91.8 billion, according to a study by global accounting firm and consultancy PricewaterhouseCoopers (PwC), citing Thomson Reuters data.
PwC considers a transaction a US deal as long as either the acquirer’s or the target’s parent company is based in the US. It describes the retail and consumer space together as “consumer markets.”
This year’s deal volume followed nearly 1,400 deals last year, the study showed.
A variety of consumer behavior changes have culminated in a flurry of M&A activities—including M&M’s chocolate parent Mars’s January agreement to buy pet hospital chain VCA, and Woolite detergent parent Reckitt Benckiser’s February announcement to buy Enfamil infant formula owner Mead Johnson.
For one, traditional big industry players are seeking to diversify their business or acquire startup know-how to help them expand in growth areas such as ecommerce. Others are responding to millennial-led consumer preference for healthier, natural and more environmentally conscious food and consumer products.
“Consumer markets is one [sector] that’s changing faster than any others because consumers’ needs and demands have changed,” Dominic Ricketts, PwC consumer markets deals leader, said in an interview from London. “Traditional retailers are suffering, and there’s a huge competition for consumer discretionary spending. It’s a competitive market. You have to be continuously evolving and changing.”“Traditional retailers are suffering, and there’s a huge competition for consumer discretionary spending. It’s a competitive market. You have to be continuously evolving and changing.”
And it’s not just the companies, or so-called strategic buyers, that are on the hunt. Record levels of capital and other available financing also have continued to cast private equity and other investment firms as key players in the M&A landscape, Ricketts said.
Bakery cafe chain Panera Bread, for instance, this month agreed to be sold to Germany’s JAB Holding Company, which also owns Krispy Kreme as well as Peet’s Coffee & Tea.
Against those and other backdrops, Ricketts said business has been the busiest in his 22 years of working on deals, and his M&A outlook remains positive.
At the same time, rising middle-class consumers across the world desiring US brands will continue to spur cross-border M&A shopping.
The PwC study showed that cross-border activity represented 81% of total deal value in Q1 2017, up 43% from Q4 2016. Looking at the number of deals, such activity represented more than a quarter of the total, up 36% from Q4. The key example here: In a $49 billion deal, tobacco company British American Tobacco (BAT) agreed to buy the remainder of US-based Reynolds American it didn’t already own.