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As shared in our Consumer & Retail M&A Outlook 2021: Revival beyond the precipice, we expect Consumer & Retail players to keep adjusting to changing consumer behavior while keeping an eye on long-term growth. Here, we dig deeper into a key theme...

Portfolio optimization: in pursuit of the right owner

In 2020, large players undertook strategic reviews and disposed of assets that were not core to the business or a poor portfolio fit, for example: Kraft Heinz’s Cheese business, Coty’s Professional and Retail Hair business and Imperial Brands’ premium cigar business. We expect to see several such announcements in the new year, with players either adding value in their portfolios or de-leveraging balance sheets for profitability.

This is not limited to product categories, as players are also exiting geographies where they do not have a strategic intent to grow, in turn redeploying capital in markets considered strategic in the long term. For instance, in 2020, Walmart  sold its operations in Argentina (to domestic retailer Grupo de Narváez), in Japan (Seiyu to KKR and Rakuten for US$1 billion), and in the UK (grocery business ASDA’s majority stake to Issa Brothers for US$8.8 billion). At the same time, Walmart continued to increase its exposure in India through a stake purchase in Flipkart worth US$1.2 billion.

Assets coming out of such strategic reviews are expected to lead to mega deals in 2021. Private Equity (PE) firms with ample ‘dry powder’ to invest and increase exposure in the sector (US$1.5 trillion in unspent capital was reported at the start of 2020) are well positioned to be preferred buyers.

Footnotes

1 Thomson Deals, accessed on 5 Jan 2021
2 CNBC Report: Private equity’s record $1.5 trillion cash pile comes with a new set of challenges, https://www.cnbc.com

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What are the other major trends are expected for Consumer and Retail M&A in 2021?