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As expected, the M&A market in the US was softened in 2019 amid geopolitical volatility, economic uncertainty, fewer megadeals (only 11 deals with value above US$1 billion in 2019 versus 20 in 2018) and key buyers digesting and integrating prior acquisitions.

Deal volume and value declined by 20 and 46 percent, respectively, versus 2018. We expect the headline M&A drivers to continue into 2020, while uncertainty over the US presidential election could also cool domestic deal flow starting in the third quarter of the year. At the same time, January's news of a new trade deal with China has prompted expectations that trade tensions could ease in 2020, potentially improving investor confidence.

Macro and structural factors influencing the C&R sector deal landscape in the US market, including consumers' increased focus on health and wellness, sector convergence and technology-driven disruption, have quickened the pace of acquisitions across the C&R sector.

The US M&A market is expected to exhibit sustained activity in C&R. We anticipate ongoing portfolio reshaping, major strides in sustainable packaging, the continued influence of activist investors and divestment of underperforming or non-strategic assets.

US M&A market activity is poised for increased activity driven by large consumer companies undergoing structural changes and the corresponding ‘ripple effect’ on the marketplace. We expect the next wave of disruption from savvy C&R players as they stay close to consumers and bring novelty via innovation.

Mark H Belford
Managing Director – C&R
KPMG in the US

Europe

Europe was the only region to witness positive M&A growth in 2019, with deal volume and value increasing over 2018 by 2 and 4 percent, respectively. The volume increase was largely the result of healthy M&A activity in Italy and the Netherlands, driven primarily by cross-border buyers, in particular 'cash equipped' PE investors. M&A deal value was driven by a couple of large deals in the region - the Just Eat merger with Takeaway (US$8 billion) and CK Assets' acquisition of Greene King (US$6 billion).

In 2020, we expect Europe's M&A market activity to be led by the F&B sector and Personal Care, driven by continued:

  • Portfolio rationalization: disposing of brands or operations in countries where their market position has resulted in below-average growth. A 2019 example is Hain Celestial's strategic sale of Tilda to Ebro Foods14 amid plans to simplify its portfolio and strengthen core capabilities;
  • Above-market performance in health-and-wellness F&B category, for example Mars acquiring a majority stake in Foodspring, a German headquartered DTC nutrition business;
  • Disposals of non-strategic assets, for example, Nestle's disposal of its skin health business to a consortium led by a PE firm EQT and the Abu Dhabi Investment Authority for about US$10.2 billion; and
  • Growth in premium, natural and organic personal care products. A 2019 example was the acquisition of Elemis by L'Occitane.
Europe - Deal value chart
Europe - Deal volume chart
Europe - Subsector chart

Companies that meet consumers' increased desire for health, wellness and natural products have been growing faster than peers. With consumer interest in Health and Wellness growing globally, we expect significant interest from large and mid-cap companies who want to invest in small and medium-size companies that are quickly gaining market share. This will impact a wide range of food, beverage and personal-care categories.

Nick Wansbury
Partner - C&R
KPMG in the UK

The key M&A players will primarily be large and mid-cap C&R companies executing their M&A strategies and PE investors holding abundant levels of 'dry powder.' The Retail sector will continue to be disrupted by changing consumer behaviors, resulting in numerous restructuring situations.

M&A activity in the UK was relatively subdued in 2019. In 2020, we expect more cross-border transactions. The UK's departure from the EU at the end of January 2020 could eliminate some uncertainty but the immediate overall impact of Brexit on future M&A remains unclear.

Continental Europe is expected to demonstrate solid mid-market M&A activity thanks to favorable financing conditions and significant PE dry powder, while some countries may see momentum softening in 2020.

Europe witnessed a 37-percent spike in in-bound deal volume from ASPAC buyers in 2019 - primarily low-value deals involving acquirers from Japan, China and Hong Kong, and Singapore - one such example is the acquisition of British skin-care brand Aurelia Probiotic Skincare by Hong Kong-based global wellness group Health & Happiness (H&H). We expect cross-border deals and opportunities for small and mid-sized assets to keep attracting interest from China and Japan, driven by the search for premium brands and advanced technologies that can be leveraged in domestic ASPAC markets.

ASPAC

C&R deal volume in 2019 declined by 6 percent while deal value declined by 39 percent versus 2018. Deal value in 2018 was impacted by a megadeal involving Flipkart's US$16 billion acquisition by Walmart. The largest 2019 deal in the region was the sale of Carlton & United Breweries by AB InBev to Asahi for US$11 billion.

The Asia-Pacific deal market is at an interesting stage. Domestic deal activity has spiked in China amid slowing economic growth and consolidation of offline and online retail players. While a buying spree by Chinese companies has slowed in 2019, they will continue to scour the global market, especially the EU, for strong brands and assets that could appeal to the domestic market.

ASPAC - Deal value chart
ASPAC - Deal Volume chart
ASPAC - Subsector chart

China's economy and consumer base continue to provide a promising market for consumer and retail companies - particularly those embracing customer-centric digital innovation - but challenges exist for individual market players amid complex consumer behaviors. The same consumer that would `trade up' to higher-priced products in some C&R categories might also be searching for the best value for money in other categories. Hence, companies are continuously finding ways to engage with consumers and make their offering fresh and differentiated.

Wei Lin
artner - C&R
KPMG in China

While Japan will remain attractive to inbound investment this year, we also anticipate that Japan's domestic consumer players will explore opportunities in large neighboring markets that are experiencing increased income levels and population growth.

Yoshinobu Nakamura
Partner - C&R
KPMG in Japan

In Japan, inbound deal volume increased by 91 percent, predominantly driven by increased interest among PE investors attracted to Japan's high-innovation economy. We expect this trend to continue into 2020. Strategic buyers (in particular from the US and South Korea) also contributed to Japan's 2019 inbound investments but to a lesser extent. At the same time, Japanese C&R companies are looking for investments abroad amid a slowdown in domestic growth. In 2019, the number of Japanese investments into Europe's C&R sector increased by 45 percent, especially in the Consumer Products and Restaurant sectors. We also expect Japan's M&A market to see new alliances and partnerships formed in the Retail sector in 2020, as market players fill gaps in infrastructure capabilities such as logistics and warehousing technology, both domestically and cross border, as online sales increase.

Significant opportunities appear to exist in Asia as European and US players target Asia's gigantic consumer base for growth. Asia's still-fragmented domestic market is also offering opportunities for consolidation, in particular F&B and convergence of online platforms and offline retailers. It is worth noting, however, that amid competition from local rivals, some global retail players have exited Asian markets.

In 2020, we expect the ASPAC market overall to remain stable. As for investments flowing out of the continent, some Asian markets may still impose heightened regulatory scrutiny and requirements on investors and the impact in 2020 remains to be seen.

ASPAC markets gaining attention. We expect to see increased cross-border deal interest in Southeast Asian nations, including Indonesia, Thailand, Vietnam and the Philippines as Consumer companies look to expand their geographic footprint and exposure in these high-population markets. South Korea is also seen as an attractive investment destination - it contributed 3 percent to global C&R deal volume and value in 2019, driven by domestic activity and interest from neighboring nations, and this trend is expected to continue as the population grows and incomes rise.

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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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