A.T. Kearney: ‘Smaller scale’ retail M&A deals replace megadeals of years past
Mergers and acquisitions activity by retail and CPG companies is undergoing a significant shift as retailers focus on acquiring capabilities that enhance efficiency and agility rather than building economies of scale.
That’s according to a new report, “Fortifying Before the Storm,” from consulting firm A.T. Kearney, which predicts that, in 2019, smaller scale, strategic M&As will replace the megadeals of recent years. The trend will be driven by multiple factors, including cash at hand, divestiture of non-core assets of strategic companies, falling asset prices and an ongoing search for growth through category expansion and investment in adjacencies.
“We see 2019 as a critical year for CPG and retail companies seeking to fill in gaps in their portfolios—notably last-mile delivery, digital capabilities, and e-commerce,” said Bahige El-Rayes, partner at A.T. Kearney and co-author of the report. “Companies will look for M&A activity to rebalance the portfolio to enhance, deepen, and ‘own’ the consumer experience of their brands and stores.”
In fact, the trend has already started. Overall CPG and retail M&A activity dropped from $392 billion in 2017 to $308 billion in 2018, primarily due to the absence of megadeals. While there was no CPG or retail M&A activity greater than $30 billion last year, the volume of deals under $30 billion remained steady.
Investors are increasingly focusing on strategic deals aimed at building legacy companies’ capabilities, such as through the acquisition of smaller, disruptive companies, according to A.T. Kearney. The volume of midsize deals fell 4% in 2018, but their value rose 6% as investors looked to acquire change agents—in the form of new brands, new customers, new concepts, new capabilities and new talent—at both lower cost and risk.
“We expect to see more divestitures happening in the next 12 months, as companies are looking to rebalance their portfolio,” said Bob Haas, partner at A.T. Kearney and co-author of the report. “We expect to see more divestitures happening in the next 12 months, as companies are looking to rebalance their portfolio. In parallel, the nature of the M&A market will shift from building economies of scale to investing in capabilities that will fortify the portfolio of CPG and retail companies”
The report, based on a proprietary analysis of 2018 M&A transactional data and an opinion survey of over 100 C-level CPG, retail, and private equity executives, noted that the global economy is clearly slowing down. It cautioned that investing before a downturn may be risky, as companies may overpay as valuation softens and growth stumbles.
“However, no one can predict the exact timeline of a downturn in the economy,” the report stated. “Waiting too long may delay both the integration of strategic capabilities and the benefit to the core business.”
That’s according to a new report, “Fortifying Before the Storm,” from consulting firm A.T. Kearney, which predicts that, in 2019, smaller scale, strategic M&As will replace the megadeals of recent years. The trend will be driven by multiple factors, including cash at hand, divestiture of non-core assets of strategic companies, falling asset prices and an ongoing search for growth through category expansion and investment in adjacencies.
“We see 2019 as a critical year for CPG and retail companies seeking to fill in gaps in their portfolios—notably last-mile delivery, digital capabilities, and e-commerce,” said Bahige El-Rayes, partner at A.T. Kearney and co-author of the report. “Companies will look for M&A activity to rebalance the portfolio to enhance, deepen, and ‘own’ the consumer experience of their brands and stores.”
In fact, the trend has already started. Overall CPG and retail M&A activity dropped from $392 billion in 2017 to $308 billion in 2018, primarily due to the absence of megadeals. While there was no CPG or retail M&A activity greater than $30 billion last year, the volume of deals under $30 billion remained steady.
Investors are increasingly focusing on strategic deals aimed at building legacy companies’ capabilities, such as through the acquisition of smaller, disruptive companies, according to A.T. Kearney. The volume of midsize deals fell 4% in 2018, but their value rose 6% as investors looked to acquire change agents—in the form of new brands, new customers, new concepts, new capabilities and new talent—at both lower cost and risk.
“We expect to see more divestitures happening in the next 12 months, as companies are looking to rebalance their portfolio,” said Bob Haas, partner at A.T. Kearney and co-author of the report. “We expect to see more divestitures happening in the next 12 months, as companies are looking to rebalance their portfolio. In parallel, the nature of the M&A market will shift from building economies of scale to investing in capabilities that will fortify the portfolio of CPG and retail companies”
The report, based on a proprietary analysis of 2018 M&A transactional data and an opinion survey of over 100 C-level CPG, retail, and private equity executives, noted that the global economy is clearly slowing down. It cautioned that investing before a downturn may be risky, as companies may overpay as valuation softens and growth stumbles.
“However, no one can predict the exact timeline of a downturn in the economy,” the report stated. “Waiting too long may delay both the integration of strategic capabilities and the benefit to the core business.”