2020 saw several trends accelerate steeply during the pandemic. In 2021, there is a dual focus on the immediate economic recovery alongside increased focus on sustainability.
The Consumer & Retail M&A market felt the pandemic’s disruption as deal volume fell 5 percent year-over-year (YoY). The impact was particularly acute in Q2 but started to turn around in Q3, ending with total deal value up 17 percent to US$ 287 billion in 2020, with the most-prominent deal drivers being consolidation, non-core asset disposal, direct to consumer (DTC)-led acquisitions, and health & wellness portfolio expansion.
We expect 2021 C&R M&A activity to show resilience as we recover from the COVID-led slowdown, and players to keep investing. Capability expansion will likely be a continued focus in 2021 as companies enhance logistics, fintech and DTC capabilities through M&A, and expand product offerings and geographical reach.
The industry also has a vision to emerge stronger, not only for economic recovery but for a more sustainability-focused future. Other impacts include possible deal-activity spikes moving in parallel to fluctuations in government-led COVID restrictions, as well as well-funded PE firms seeking value-creation opportunities in carve-outs.
Read Nicola Longfield's blog on 2020 and 2021. In the meantime, we hope you find the following content insightful and helpful.
2021 – Key C&R M&A themes
In 2021, Consumer & Retail players are expected to keep adjusting to changing consumer behavior while keeping an eye on long-term growth. Analyzing consumer players’ strategies for 2021 and beyond, we expect continued long-term investment in Health and Wellness, digital transformation and channel expansion.
In that light, we expect Consumer & Retail M&A deal making to be driven primarily by three major factors: Portfolio Optimization, Capability Expansion and Sustainability.
In pursuit of the right owner
Assets coming out of such strategic reviews are expected to produce a mega deal in 2021.
In 2020, large players underwent strategic reviews and disposed of assets that were not core to the business or a poor portfolio fit.
Players are also exiting geographies where they do not have a strategic intent to grow, in order to redeploy capital in markets considered strategic in the long term.
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2021 wishlist: ‘speed to door’
Include agility, the advantages of a strong-and-short supply chain and direct customer engagement.
Use of digital channels has accelerated rapidly and is expected to continue, expanding fintech in 2021.
FMCGs seem determined to strengthen their D2C channels and exert more control over their digital presence.
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Explore 2020 deal volume and values in select geographies using the interactive map. Then click to read more about each geography’s themes and outlooks for 2021 and local contacts and contributors.
Deep dives into three major sectors of Consumer & Retail
It is critical to understand the varied outlook and themes given the different impacts the pandemic has had, ranging from thriving sub-sectors to those clearly requiring a transformation to survive. Below, we examine the themes, outlook M&A tailwinds and headwind.
Consumers sharpened their focus on health and wellness, especially plant-based alternatives that registered 27% growth YoY.1
Frozen food sales recovered in 2020 as at-home consumption increased: sales jumped by 80% and 94% YoY, respectively, during the last two weeks of March.2
Demand for low- or no-alcohol drinks pushed companies to innovate. Coca-Cola announced its entry into seltzers with Topo Chico.3
Increased at-home consumption and wallet pressure adversely impacted the beverage category, such as functional drinks, which are expected to contract by 2.5% in 2020.4
Large players are expected to increase exposure in Direct-To-Consumer (DTC) offerings (Nestlé acquired Freshly and Mindful Chef).10
Corporates, undergoing portfolio reviews, may exit categories and brands that are not core to their strategy, such as Molson Coors selling its CEE businesses.11
Health and wellness is expected to stay at the top of agendas, for instance, Unilever acquiring innovative Oral Rehydration Solution company Liquid IV in the US.12
Consumer preference for low-/no-alcohol drinks may push beverage players to enter the category inorganically to make inroads faster. Hard Seltzer is expected to grow at 16% to reach US$14 billion over 2021-27.13
Some players are expected to be cautious, due to the uncertain macro environment, before making any M&A decisions.
Evolving consumer preferences may elevate at-home consumption, and big trusted brands could remain strong going forward, venturing into high-growth markets such as ASPAC and Brazil.
Carve-outs of assets are expected, either distressed or not core in portfolios. For example, the recently announced strategic review, including possible disposal of parts of Nestlé’s North American Waters business.17
Alcohol players may invest in Hard Seltzers that are expected to grow at 12.7 percent CAGR over 2020-25,18 and expand into channels inorganically and organically.
Soft-drink players may sell distressed brands or reduce portfolios to bring innovative offerings: Coca-Cola invested in Endian, famous for its relaxation drink Chill Out.19
Players pursuing aggressive sustainability targets, outperforming most large players in the MSCI index, are sitting in the top 5%, for example, Danone.25 The company is doing a strategic review and could carve out assets that do not comply with its long-term ESG vision.
COVID-19 has elevated demand in the home-hygiene sector: Reckitt reported a 19.5% hike in like-for-like sales in the hygiene business in 3Q 2020 as compared to 4% in 4Q 2019.5
Personal-care segment showed resilience, with some stability due to over stocking.
Pet care grew significantly as pet adoption rose during the pandemic. The pet-care sector is expected to grow by 4% annually to US$120 billion by 2024.6
Consumers taking a more proactive approach to nourishing body and mind may push companies to expand into premium-health focused categories through M&A.
Home-care companies have plenty of cash and financial flexibility to pursue growth organically and inorganically. For instance, Clorox Q1 2021 sales increased 27.2% to US$1.92 billion, its highest quarterly growth in decades.14
Companies could continue to move into adjacencies, and premium products within existing categories, to increase exposure in the whole spectrum of products, especially high-growth sub-sectors. For instance, Protex launched the premium anti-acne segment - a high-growth adjacency.15
Players to tread carefully in the beauty and personal-care segment due to a decline in wallet size and fewer occasions for consumers to socialize.
Portfolio optimization may lead to large players disposing of non-core assets, such as Unilever CFO announcing the possible sale of small personal-care brands.20
Consumer players/PEs may look at assets that offer premium pet products, to leverage the high-growth trend (Alvarez & Marsal acquired premium pet-care company BrightPet Nutrition Group).21
Inorganic and organic expansions into digital capabilities are expected among companies pursuing higher customer engagement. For instance, Boots No7 in the UK launched free beauty services via phone.22
Players may increase exposure in assets that have strong ESG standards. In 2020, Beiersdorf acquired natural cosmetics brand Stop The Water While Using Me.26
E-commerce experienced rapid growth as consumes were forced to stay at home due to lockdown. About 16% of retail sales in 2Q were online, a 44.5% increase YoY.7
Grocery retail remains unaffected from COVID as consumers prioritized essentials; on the contrary, non-food retail suffered in 2Q amid extended lockdowns in several countries.
Luxury fell off in 2Q but recovered due to rapid growth in the largest luxury market of China, contributing 20% to the sector.8
Casual dining declined due to movement restrictions and lockdowns in major geographies. TGI Friday’s is to permanently close up to 20% of its US restaurants.9
Assets that have survived thanks to government support may come to the market as support ends. In the US, retail sales declined 0.9% MoM in July after the government’s stimulus withdrawal.16
Fashion retailers with online presence may see investment by large retailers expanding channels.
Companies may look at JVs and non-traditional arrangements with technology players to converge online and offline supply chains, including customer buying and return journeys.
Players may off-load physical assets, moving away from asset-heavy models to save cash and increase profitability.
Due to COVID distress, players are expected to focus on improving profitability organically.
Government support in countries such as China may bring temporary relief in the sector. We expect more activity in grocery and food retail, especially with multi-channel presence.
The sector is not expected to witness big deals as players focus on cash over extensive growth.
Casual dining players may look at entering the off trade through acquisitions or innovations. For instance, Pret A Manger launched retail coffee through Waitrose and online channels.23
PE may continue increasing exposure in online retailers through minority stake increases or bolt-on acquisitions. KKR invested US$750 million in Indian retail conglomerate Reliance.24
Players may look at investing in capabilities for sustainable solutions. For instance, IKEA launched its first second-hand furniture store in Sweden, aiming to become a circular business by 2030.27
How KPMG can help?
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The information presented in the report is an analysis of announced deals in the Consumer & Retail sector over a period of 2018-20, accessed on 5 Jan 2021. The data has been sourced from Thomson Deals, where the Target company belongs to any of the following sectors: mid-industry groups: Agriculture & Livestock, Apparel Retailing, Computer & Electronic Retailing, Discount and Department Store Retailing, F&B Retailing, F&B, Home Furnishings, Home Improvement Retailing, Household & Personal Products, Internet and Catalog Retailing, Other Consumer Products, Other Consumer Staples, Other Retailing, Textiles & Apparel, and Tobacco.
There are certain adjustments made to the data to select only relevant data from the mentioned sub-sectors and exclude transactions where the target does not fall in the Consumer & Retail sector (example, professional services such as environmental consulting). The data also minimizes repurchases. The analysis is conducted on M&A transactions including mergers, acquisitions and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between January 1, 2018 and December 31, 2020, including deal status of completed, partially completed, pending, pending regulatory, unconditional (i.e., initial conditions set forth by the buyer have been met but deal has not been withdrawn and excludes all rumors and seeking buyers).
Additionally, data is continuously updated and is therefore subject to change. It may not exactly replicate the last year numbers as there are continuous additions that have been made in the back end from database.
1 News Report: Plant-based food sales soared 90% in peak panic-buying period, https://www.supermarketnews.com
2 News Report: 70% of Consumers Adding More Frozen Foods, https://foodindustryexecutive.com
3 News Report: Coca-Cola to launch Topo Chico Hard Seltzer in Europe, https://www.beveragedaily.com
4 Research and Markets: Global Functional Beverages Market Report 2020-30, https://www.globenewswire.com
5 Reckitt Benckiser, 3Q Financial Release
6 Mordor intelligence: Pet Care Market, https://www.mordorintelligence.com
7 News Report: E-commerce: Entering the Next Wave of Growth, https://www.tradersinsight.news
8 News Report: E-commerce: Entering the Next Wave of Growth, https://www.tradersinsight.news
9 News Report: TGI Friday’s to Permanently Close Up to 20% of U.S. Restaurants, https://www.bloombergquint.com
10 News report: Nestlé USA acquires Freshly, https://www.globenewswire.com
11 News Report: Molson Coors said to divest non-American business, https://www.inside.beer
12 Press Release: Unilever to acquire Liquid I.V.
13 Grandview Research: Hard Seltzer Growth and forecast, https://www.grandviewresearch.com
14 News Report: Clorox Smashes Q1 Earnings Forecast, Boosts 2021 Outlook, https://www.thestreet.com
15 News Report: Colgate-Palmolive Co (CL) Q3 2020 Earnings Call Transcript, https://www.fool.com
16 News Report: US retail sales slowdown points to effect of stimulus withdrawal; https://www.ft.com
17 News Report: Nestlé launches sale of North American water brands – Reuters, https://www.spglobal.com
18 MarketDataForecast.com: Hard Seltzer Market
19 News Report: Coca-Cola Japan to enter local 'relaxation drink’, https://www.foodnavigator-asia.com
20 Press release: Unilever could tidy portfolio with disposals in beauty and personal care, https://in.reuters.com
21 News Report: Private Equity Investment Fund Acquires Majority Interest in BrightPet Nutrition Group, https://www.petproductnews.com
22 News Report: Boots launches virtual makeup and skincare service for beauty fans during lockdown, https://www.dailyrecord.co.uk
23 News report: Pret A Manger launches retail coffee range in Waitrose, https://www.caterlyst.com
24 News report: KKR invests Rs 5,550 crore in Reliance Retail, https://www.financialexpress.com
25 Danone: How Do You Solve a Problem Like Danone?, 15 Oct 2020
26 Press Release: Beiersdorf acquires natural cosmetics brand STOP THE WATER WHILE USING ME!; https://www.beiersdorf.com/newsroom/press-releases/all-press-releases/2020/02/05-beiersdorf-acquires-stop-the-water-while-using-me
27 News Report: The world's first second−hand IKEA store opens in Sweden https://www.thenewsmarket.com/news/the-world-s-first-second-hand-ikea-store-opens-in-sweden/s/b1aa5e3d-a9e8-4816-828d-72af9b914106
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