M&A Activity in the Consumer Market

by Carolin Schillmeier

M&A activity in the consumer market is picking up again. Buyers are on the one hand large consumer enterprises and on the other hand Private Equity (PE) companies.

Large consumer companies with fairly strong balance sheets are using their financial strength to generate growth in a stagnating market. Another M&A driver is the enhanced ability to control costs through acquisitions, since higher vertically companies have greater control over their margins. It is expected that food and drink will be an active sector in the year 2011, due to the underlying inelasticity of demand and the need for consolidation in the consumer market. There are a large number of global players in the food and drink industry including companies such as Generics, Nestlé S.A., Unilever and Coca-Cola which are always looking for appropriate targets.

For PE companies the consumer market is attractive due to its stable cash flows and high cash reserves. In addition most consumer companies possess a diversified portfolio of products and division. This is very interesting for PE, because they hope to break up the company and to sell the individual parts for a higher price than the company as a whole. PE houses are predicted to drive M&A activity when market conditions improve, because many are sitting on accumulated funds.

Recent large deals in the consumer industry:

• In September 2009: Cadbury acquired KraftFoods for US$18.7 billion
• February 2010: purchase the of the bottler Coca-Cola Entreprises by Coca-Cola for US$13.4 billion
• September 2010: Unilever takes over Alberto Culver, the US consumer products group, in a $3.7 billion deal
• December 2010: Unilever buys Sara Lee’s personal hygiene division for $1.0 billion

Sources:

Euromonitor International (2011), Global players ranked by market share, retrieved from http://www.euromonitor.com/MarketShare.aspx?folder=Packaged_Food.

KPMG (2010), A Global View of M&A in Consumer Markets: 2010 and beyond, retrieved from http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Documents/a-global-view-ma-in-consumer-markets-july-2010-final.pdf.

Robinson (2010, September 28), Unilever buys Alberto Culver for $3.7bn, retrieved from http://ftalphaville.ft.com/search?q=unilever.