A recent study published by Mergermarket
indicates that on a global basis, consumer markets M&A has
outperformed other industry sectors in the past year and is
predicted to continue performing well in the next year. This has
implications for many industries, as 'consumer markets' is
a broad grouping that generally covers most industries that
primarily involve the purchase of goods by end-consumers (for
example, ranging from food and beverage to luxury goods).
According to the study's authors, compared
to the first quarter of 2014, the volume of global consumer markets
M&A activity was down only 3% in the first quarter of 2015,
whereas the volume of all global M&A was down by 6%. Moreover,
when assessed by deal value, during the first quarter of 2015
consumer markets M&A was up by 47% compared to the first
quarter of 2014, whereas total M&A was up only 17% in respect
of the same period.
What's driving this strength in consumer markets
The performance of consumer markets companies
is closely tied to overall economic health, because at a very basic
level, when consumers have more available cash they can spend more
on consumer products. However, with the global economic downturn of
recent years, consumers have had less cash available to spend on
As a result of slow organic growth, consumer
markets companies have looked for opportunities to increase
performance by entering new markets, expanding their presence in
existing markets by way of industry consolidation, and reducing
costs by, for example, acquiring new distribution platforms and
efficient technologies. In many cases, purchasing an undervalued
target has been an ideal way for consumer markets companies to
achieve these objectives.
Of the dealmakers surveyed for the study, 32%
predict that the food and beverage industry will see the greatest
M&A activity in the next year, as companies try to consolidate
and reduce costs. The next greatest area of predicted activity,
accounting for 24% of dealmaker responses, is the luxury goods
industry, where demographic changes and earning-potential increases
in certain locations are forcing companies to adapt their strategy
to changing industry norms.
However, the very explanations for strength in
consumer markets M&A are a double-edged sword. The study
reports that 28% of dealmakers worry that uncertain global economic
conditions may dampen M&A activity in the sector, because
beyond a certain point if consumers aren't spending enough,
even the synergies realized from an M&A deal may not be
worthwhile. Other primary concerns relate to the inability of being
able to strike a good deal, with 24% of dealmakers concerned that
target companies may overprice themselves, and a further 20% noting
that it may be difficult to find suitable target companies.
As with any type of transaction, it's
important that dealmakers understand (and have advisors who
understand) the underlying business of the companies involved and
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