Consumer Markets deals insights - Q1 2018

 

 

Competition fuels deal activity as the hunt for growth and customer attention continues 

After a record peak in Q4 2017, Consumer Markets deal activity declined in Q1 2018 but remains quite active with strong momentum. Demographic factors and the impact of technology continued to drive companies to reassess their core businesses driving M&A in the sector, although at a slower pace than in 2017 partially due to continued uncertainty around tax reform and the recent tariff announcements.  Both deal volume and value decreased in the sector during the quarter compared with Q4 2017 to $60.3 billion and 494 deals, respectively. The decline from Q4 2017 was mostly driven by the CVS / Aetna mega deal of $77 billion in December 2017.  Excluding the CVS / Aetna mega deal, Q1 2018 deal value was up 29% over last quarter.

 

 

 

“We saw a clear softening in M&A activity in Consumer Markets in Q1 2018 despite strong market conditions. We attribute the slowdown to uncertainty about the impact of US Tax reform and NAFTA negotiations.  However, with a liquid private equity market and strong economic growth, market conditions are still favorable for M&A activity in Canada.”

- ​​Brooke Valentine, Partner, Canadian Consumer Markets Corporate Finance Leader

 

 

Trends and highlights

Key trends

Cross-border deal volume represented 30% of total deal volume in Q1 2018, down from 36% in Q4 2017. With the current administration’s pressure on companies to manufacture in the US and bring back jobs from overseas, US companies have not been eager to invest abroad. US companies will need to assess the full impact of tax reform and the combined effects of the announced tariffs, if they come to fruition, before growth in cross-border M&A activity would be expected.

Key trends

Consumer Markets IPOs continued building off the strong activity from 2017, with six IPOs raising over $2.85 billion. The total deal value in Q1 2018 alone is nearing that of all IPOs for the sector in 2017, which raised $3.15 billion.

Key trends

Private equity investments continue to grow in Consumer Markets with Q1 2018 representing the second strongest quarter in recent years in terms of deal value. Deal volume increased by 4% over Q4 2017, and represented 39% of total announced deal value.

Key trends

EBITDA multiples have declined for the first time since Q2 2017.  Factors affecting multiple value include a decline in deal volume and announced deals with smaller values and lower premiums. In addition, the recently announced tariffs by the US and China have created market uncertainties, while rising interest rates have led to unfavorable financing conditions.

 

 

Sector specific highlights

Consumer

Although three of the four megadeals announced this quarter belong to Consumer, companies continue to make smaller investments focused on smaller niche brands that have been slowly taking market share from large global brands.  Through predictive analytics we believe that companies within the Consumer sector are more likely to make divestitures over the next three quarters than the other categories in Consumer Markets as they aim to dispose of unprofitable business units. 

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Retail

Retail deal value grew from 9% of total deal value in Q1 2017 to 21% in the current quarter. Today’s tech savvy consumers have challenged retailers to invest and scale up on new technology at a rapid pace, including Artificial Intelligence, consumer analytics  and mobile platforms. Companies that fail to embrace digital technology have been quick to go out-of-business, with toy and game chain Toys R Us being one of the latest examples.

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Hospitality and Leisure

Hospitality and Leisure deal value increased from 6% of total deal value in Q1 2017 to 16% in Q1 2018. Inorganic growth through brand acquisition continues to be an attractive option in the fragmented hotels industry, as companies look to expand into new geographic markets to scale up and grow in market share. In turn, hotels seek to remain competitive against alternative lodging companies like Airbnb.

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Contact us

Sonia Boisvert
Assurance Partner, Retail & Consumer
Tel: +1 514 205 5312
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Adam Boutros
National Assurance Markets Leader & Oakville Managing Partner
Tel: +1 416 687 8123
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Michelle Pickett
Deals Lead Partner, TMT & Consumer Markets
Tel: +1 416 815 5002
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Alain Michaud
Chief Culture Officer
Tel: +1 514 205 5327
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Kate Furber
Private Company Services Leader
Tel: +1 604 806 7827
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Brooke Valentine
Partner
Tel: +1 416 687 8141
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