Consumer products and retail companies lead deal appetite

The FINANCIAL — Appetite for mergers and acquisitions (M&A) among consumer products and retail (CPR) companies is the highest of 19 sectors surveyed and above the global average of 50%, according to EY’s 14th Consumer Products and Retail Capital Confidence Barometer.

The survey of 237 CPR industry leaders from around the world finds that more than half (55%) of companies plan to pursue acquisitions in the next 12 months.

However, CPR executives remain cautious. Forty-five percent are prioritizing cost reduction and efficiency in the boardroom, and 20% have walked away from deals due to issues uncovered during due diligence – up from 5% six months ago. Eighty-eight percent also admit failing to complete or canceling a planned acquisition in the last 12 months, a 13% increase from six months prior.

Blaise Girard, EY’s Global Consumer Products & Retail Leader – Transaction Advisory Services, says:

“While caution still looms, consumer products and retail companies are actively seeking to drive external growth momentum, with 33% citing four or more deals in the pipeline – up from 23% six months ago. Companies that use strategic M&A to address disruptive forces across the sector, rather than focusing on cost reduction alone, will be positioned to thrive in the months and years to come.”

The survey reveals a significant spike in the number of companies looking at deals of more than US$1b, rising to 13% from 4% just six months ago. This indicates that more companies are looking for transformative deals to fundamentally alter their business strategy and disrupt the market.

Companies are also responding to digital advances which are changing consumer behavior and disrupting traditional business models, with 52% of executives looking to make better use of technology and analytics to develop new products and enter new markets as a means to drive growth.

Kristina Rogers, EY’s Global Consumer Products & Retail Leader, says:

“EY’s recent Consumer Products & Retail Survey1 also echoes sentiment across the sector that companies need to embrace ongoing disruption, with 74% of consumer products and retail companies saying they need to take bolder measures to succeed.With only 13% of those companies indicating that they have the right talent mix to adapt to this rapidly changing landscape, increased appetite for acquisitions and transformative deals may be part of a bid to resolve that.”