Nostalgia is a seductive liar. It would be understandable if many veteran executives in the consumer goods industry indulged in misty-eyed reverie about the good old days, when double-digit growth was the norm, channels to market were straightforward and consumers were slavishly loyal. In truth, business life was never that simple or rosy – there were still recessions, wars, corporate failures – but the memories contain some truth. In the heyday of the big multinational manufacturers and retailers, as Mark Belford, Co-Head, Consumer & Retail Banking at KPMG Corporate Finance in the US, puts it, “It was possible to succeed with what I call an inertia-based enterprise. If you had the products, distribution and marketing, the business would almost look after itself.” Life – especially if you run a global brand – just isn’t that simple any more. Take growth, for example. Liz Claydon, Head of Consumer & Retail for KPMG in the UK, says: “Companies are finding organic growth harder to come by. Our barometer of leading consumer packaged goods companies shows that the median compound annual organic growth rate decreased from 4.2 percent in 2015 to 3.4 percent in 2016. Companies can grow faster – the top performer has enjoyed a median organic growth of 7.7 percent over the past six years – but it is becoming difficult to grow the business by launching a new product or taking an existing product into new markets where competition from local brands is intensifying.”
On top of that, the business is having to cope with changing customer preferences, digital technology and disruptive innovators, many of which are funded by private equityinvestors or venture capitalists for whom the potential rewards justify the risks. The spectacular success of Dollar Shave Club, the subscription model grooming company, began when a group of venture capitalists decided to put money into several start-ups that would disrupt Procter & Gamble’s business. They didn’t all work but five years after Dollar Shave’s launch in 2011, the company was acquired by Unilever, for US$1bn, according to media coverage. That, as Belford says, is the kind of return that will encourage investors to make similar bets. In response to such radical and rapid change, the major players are looking to simplify their model – in KPMG’s barometer, the companies that generated most organic growth often focused on a single market and a single brand. That means rationalizing their portfolios – which is why we have seen, for example, Unilever putting its spreads business up for auction – but also strengthening them in the right areas – which is why Unilever has also acquired fast growing South Korean skincare brand Carver Korea for US$2.7bn.
There are, according to Mark Harrison, Deal Advisory Partner at KPMG in China, good reasons why acquisitions seem particularly attractive now. Interest rates are at historic lows, many companies have large cash reserves and many global groups recognize that the right acquisition can help accelerate change. The global volatility in the sector is also driven by businesses in emerging, relatively high-growth economies looking for new markets, know-how and technology.