It has been a busy year for dealmakers in the consumer & retail (C&R) space. The M&A rally continued its fast-paced journey with 2021 witnessing the strongest year of deal making in the last two decades. Over 6,400 deals were completed by November and corresponding deal values reached US$332 billion, up 15 percent compared to deal values in the previous full year.  

What’s going to drive deal activity in the first quarter of 2022? C&R leaders will be focusing on these key themes: health of the consumer, health of the planet (and society), digitisation and changing business models.

 

Consumer and Retail announced M&A Deal Volume - last 2 decades-image

Source: Thomson Deals, accessed on 8 Dec 2021 (LTM defines 12 months to 30 Nov 2021)

All deals selected (except repurchases) for mid sectors – Agriculture & Livestock, Food and Beverage, Household, Personal Products, Other Consumer Staples, Textiles & Apparel, Tobacco, Apparel Retailing, Discount and Department Store Retailing, Food & Beverage Retailing, Home Improvement Retailing, Other Retailing, Internet and Catalog Retailing, Home Furnishings, Other Consumer Products, Computers & Electronics Retailing

 

The surge in deals started in the latter part of 2020. Deals that would have ideally seen the light of day in the middle of 2020 got delayed on account of the lockdowns due to the pandemic. Hence, a majority of deal announcements happened toward the end of 2020.

But during that time, the market got more confident with investor activity surging at an all-time high in the form of financial investments and strategic acquisitions. Almost in all key geographies, capital markets became attractive for companies, especially new unicorns. These companies have been eyeing expansions and raising funds.

Global M&A, taking cue from the positivity around the market, swelled 17 percent in last twelve months (LTM) to reach 6,432 deals (LTM to 30 Nov 2021) over full year 2020 and 11 percent over full year 2019. The corresponding deal values also increased by 15 percent to reach US$332 billion in LTM over 2020 and 35 percent increase over 2019. Bullish deal markets across the UK, North America and China directly impacted the increase in deal volume.

Consumer and Retail - Deal volume change YoY-image

Source: Thomson Deals, accessed on 8 Dec 2021 (LTM defines 12 months to 30 Nov 2021)

Deals data cleaned for irrelevant deals in mid sectors – Agriculture & Livestock, Food and Beverage, Household, Personal Products, Other Consumer Staples, Textiles & Apparel, Tobacco, Apparel Retailing, Discount and Department Store Retailing, Food & Beverage Retailing, Home Improvement Retailing, Other Retailing, Internet and Catalog Retailing, Home Furnishings, Other Consumer Products, Computers & Electronics Retailing

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M&A outlook in 2022

According to our CEO Outlook 2021, 86 percent of C&R leaders say they are ‘confident’ or ‘very confident’ about their growth strategy over the next three years. Despite challenges such as supply chain disruption and risk of surge in COVID variants, we expect the market to stay resilient and the M&A rally to continue with the same zeal witnessed last year.

To drive transformation a slightly higher percentage of C&R CEOs, compared to other sectors, are looking to forge innovative new business partnerships that will be critical to sustaining the pace of digital transformation compared to all global CEOs. The question for many is whether to build, buy or partner in order to rapidly implement the digital capabilities needed to compete in a bold new era of customer-centric service and personalisation.

The market is ripe for investors looking to leverage the uncertain times for investing in attractive product propositions, innovative channels, technology-driven efficient supply chain and sustainable assets. Financial buyers have driven about 50 percent of the total deals in 2021. We expect the share to only increase, as we look towards the carve outs expected to be coming out from large corporates in the new year.

Aligning and adapting with fast-changing consumer demands

C&R leaders across the globe will be focusing on health of the consumer, health of the planet (and society), digitisation and changing business models as core themes. All of these are evident in M&A trends in the C&R sector too. Investments in organic, natural products, sustainable packaging, etc., have increased in the last 24 months. A report from EIU shows a 71 percent increase in online searches for sustainable goods globally over the past five years.

Another major trend is portfolio reshaping, to align and adapt with fast-changing consumer demands. To remain strong, corporates have also been rationalising and focusing on their core competencies. With an eye on the future, lines have blurred between the online and offline mode of business. As a result, both online and bricks and mortar models continue to coexist and prosper.

In all, we expect the new year to begin on a good note. Consumer centricity will remain an M&A fundamental while scouring assets and valuing opportunities in the sector.