Despite the slowdown in global economic recovery, companies in the food, drink, consumer goods and retail sectors are still actively seeking mergers and acquisitions (M&A), particularly in the developing economies. In some markets, M&A activity in the consumer sector may even increase over the next 18 months, as companies strategically position themselves for growth and stronger margins, according a new international study by KPMG’s Global Consumer Markets practice.
The report is based on interviews with senior KPMG M&A professionals around the world covering the U.S., Canada, Spain, U.K., Poland and Central Europe, Russia, South Africa, Australia, China and Hong Kong, India, Brazil, Argentina, and Mexico, on their outlook for M&A activity in the consumer sector over the next 18 months. It reveals that, while economic indicators point to a decline in manufacturing output and weakening share prices, consumer companies in some economies are being targeted both by international buyers looking to enter new markets, as well as local companies looking to strengthen their presence domestically.
A lot of M&A activity is being driven by Private Equity (PE) houses which have reacted to the recession by taking on a value-added, long-term supporting role rather than just providing financial backing and driving short-term profitability.
In the countries of Central and Eastern Europe and Russia, PE houses are stepping in to modernize companies or consolidating fragmented, struggling businesses to add long-term value. Similarly, in India, Argentina and China, PE firms are taking stakes in smaller businesses, providing guidance and direction to shape long-term growth strategies and accelerating the development of these companies.
Another key point, on which there was broad consensus among the KPMG interviewees, was the need for additional adjustment in prices before M&A activity would really resurge.