February 16, 2016
By Leanne Sardiga, PwC’s US Retail & Consumer Deals Leader
While 2014 was a strong year for retail & consumer (R&C) mergers and acquisition (M&A) activity, 2015 outperformed. The reason? Last year’s deal activity was driven by the largest number of megadeals (deals valued at more than $1 billion) seen in the sector for several years, with total transaction value for 2015 surpassing the $100 billion mark for the third year in a row, setting a new five-year high, according to PwC’s US retail and consumer deals insights: 2015 year in review and 2016 outlook.
The R&C sector experienced a busy deals landscape in 2015 for a few reasons. Shareholder activism is the new norm, which has put pressure on companies to more assertively articulate and execute on a focused strategy – leading to acquisitions and divestitures among other strategic moves. Amidst changing consumer preferences and demographic shifts, the organic growth in traditional markets hasn’t been enough to support shareholder expectations, and M&A was pivotal in filling that gap.
Transactions, particularly in the food and beverage sector, continue to be the focal point for investment for both corporate and private equity, driven by the need to reposition businesses and consolidate cost structures. By effectively outsourcing part of a company’s innovation (e.g., new products, digital, omni-channel) through full or partial acquisitions offers greater agility than in house R&D and companies can take advantage of the access to new business segments and realize immediate benefits.
These changes in business strategy correlate to the current shifts in consumer buying habits. According to PwC’s 19th Annual Global CEO Survey, 77% of retailers and 57% of consumer goods CEOs are concerned that a shift in consumer spending and behaviors is a potential business threat to their organization, and we’ve already seen companies adapting in the food and beverage (including alcohol), household and personal products and consumer products sub-sectors, where the deal activity has remained steady.
We expect the effects of new consumer preferences to continue to influence M&A activity throughout 2016, including a growing demand for more convenient, higher value and cost effective means of enhancing wellness and receiving healthcare. Retailers have already embarked upon varied health and wellness-led strategies to capitalize on the opportunities, and the healthcare sector is currently converging with retail trends and adopting consumer centric strategies.
Despite potential global economic uncertainty and the valuation gap between buyers and sellers, overall factors supporting R&C deal activity support favorable deal momentum into 2016.