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We anticipate a few key themes to be sustained in 2020 C&R M&A. Portfolio optimization will again be near the top of the agenda as investors keep growth and capital redeployment sharply in focus amid ever-changing consumer expectations and behaviors. Companies will be targeting the vast potential of health-and-wellness assets and related market segments via strategic M&A and selling non-core assets.

Many sector players are still on a digital transformation journey, a trend that will continue at a robust pace. We expect more M&A activity in this space, including the pursuit of alliances and partnerships, all aimed at forging powerful new consumer connections and enhancing competitiveness in the digital age. As evolving consumer behaviors and today's dynamic business environment continue to challenge companies to respond as quickly as possible via innovation and transformation, M&A is often seen as the quickest solution.

Global personal-care giant L'Oréal is a good example of the race to meet consumer expectations. The company is working with startups worldwide while revamping operations for the digital age: hiring 2,000 digital experts, digitally upskilling some 22,000 employees, restructuring marketing teams and growing its e-commerce business. And as CEO Jean-Paul Agon remarked in media reports: "We have completely transformed the company - but we are still at the beginning of the journey."

As noted earlier, we expect to see more examples of how the concept of a 'transformational' deal has changed of late. Look for the frequency of M&A megadeals to be outpaced by highly tactical deals aimed at helping firms innovate, reshape operations and redefine business models by acquiring missing core competencies in digital and analytics, supply chain and more. In doing so, today's players will be pursuing assets that offer longer-term value instead of chasing more-immediate cost synergies.

A good example is Nike, which has been on a digital transformation journey through a series of acquisitions over the last two years. In 2018, the sports apparel leader acquired consumer data analytics firm Zodiac and computer-vision company Invertex, based in Israel, while in 2019 it purchased Celect, a retail predictive and demand sensing firm, to better predict shopping behavior.

With a focus on building sustainable long-term value, Global C&R companies are aggressively reshaping the portfolio and pursuing the growth agenda. M&A will continue to play a key role in the capital strategy to aid in bolstering the core, advancing next-gen technologies and enhancing the customer experience.

Kevin Martin, Partner - C&R, KPMG in the US

Investment categories active in 2020

Categories with a highest growth potential: The plant-based alternatives market is expected to grow by 14 percent annually to US$80 billion by 2024.

The functional beverage category is expected to reach US$208.13 billion by 2024, a CAGR of 8.66 percent from 2019-2024. In addition to this, healthy beverages, including no or low-alcohol beverages and low-sugar alternatives, will also stay on investors’ radar.

The global beauty and personal care market is expected to grow at ~7 percent CAGR to US$716 billion by 2025. The trend is driven by premium segment and organic and natural offerings.

Innovative Technological Solutions: Players are investing in technological solutions to integrate machine learning and AI and leverage data to enhance the consumer experience.

Assets with sustainability features: Players are continuously investing in climate and environmental sustainability solutions through innovation in their supply chain and by acquiring product categories that have sustainable features.

Assets with clean labels and traditional appeal: Sector leaders are making sure that products featuring “clean labels” – having fewer ingredients and in particular reduced artificial ingredients such as artificial flavors, colors or preservatives – are targeted for their product portfolios in order to meet the expectations of health-conscious consumers.

Direct-to-Consumer (DTC): Where possible, businesses will look to enhance profitability by disintermediating retailers via DTC strategies. At the same time, consumer demand for direct interaction with brands will also continue fueling investments in DTC capabilities.

Adjacent markets: Companies are expected to take calculated risks and enter adjacent markets to expand their exposure. There will also be several vertical integration deals to offer greater control of supply chains.

Consumer & Retail M&A trends 2020: Pursuing opportunities amid uncertainty
KPMG’s 2020 Consumer & Retail M&A trends report predicts that the transformation journey will continue this year as global businesses proactively respond to evolving consumer behaviors – reinventing their business models to become more customer-centric. The focus on portfolio rationalization, consolidation and diversification is expected to continue driving the majority of sector-related M&A activity in the year ahead. In addition, we expect sector players to remain heavily influenced by the ongoing sustainability agenda, as investors target assets with sustainability features offering value in the longer run. The report also outlines our regional outlook and what to expect as key M&A themes in the sector this year.

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