The FINANCIAL — While operational efficiency still weighs on consumer products and retail (CP&R) companies, 66% of C-suite executives expect to pursue acquisitions within the next 12 months, according to EY’s Consumer Products and Retail Capital Confidence Barometer. This represents a 13 percentage point increase on sentiment from six months ago, and 25% are preparing to complete more deals than in 2014.
The trend for disposing non-core assets to reduce costs dominated in the first three quarters of 2015. In the wake of several blockbuster deals this year there is now renewed optimism, with nearly 60% of CP&R companies that are actively pursuing mergers and acquisitions (M&A) reporting three or more deals in the pipeline, and four out of five executives expecting more buoyant M&A activity over the next 12 months (81%).
Blaise Girard, EY’s Global Consumer Products & Retail Leader Transaction Advisory Services Leader, says:
“Consumer products and retail companies are strategically evaluating their portfolios to manage spend and invest in higher growth products. They are considering a full range of options that seek to balance the need to improve share price performance with opportunities to drive long-term business growth, and becoming bolder in their M&A outlook to achieve this.”
Companies seeking bigger deals as investment shifts to mature markets
Many CP&R companies are buying for scale and seeking bigger deals, with nearly one-third (32%) looking to the upper-middle-market for deal-making opportunities and 4% aiming to pursue deals in excess of US$1b. However, an overwhelming majority are considering acquisitions that complement their existing business models (73%).
Geographically, the landscape has also shifted markedly in the last 18 months, as CP&R companies look to invest in mature rather than emerging markets. The reason for this shift appears to be threefold: greater trust in mature market supply chains; appetite for greater economic and political stability; and fewer quality M&A targets in emerging markets.
Girard says: “As the Eurozone emerges from recession, mature markets are turning back to M&A as a key driver for growth. But caution remains as 50% of companies continue to focus on cost reduction and operational efficiency. So while companies are looking to acquire to stave-off competition, it remains to be seen if the sector is in fact being bold enough.”
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