Deal-making in the consumer markets industry will flourish in 2022, as more people are vaccinated and consumer spending increases across a broad category of products and services. Where consumers spend their money is being influenced by lifestyle changes due to new ways of living and working. These changes in consumer preferences will act as the most significant catalyst to mergers and acquisitions (M&A) activity in 2022, both in terms of corporate portfolio reviews and strong interest from private equity (PE) firms.
COVID-related restrictions continue to impact demand in several of the most hard-hit sub-sectors, including hospitality and leisure. But as restrictions ease, consumer confidence is expected to return, along with pent-up demand. However, in the coming months, headwinds created by new variants, slowing GDP growth in China and Europe, rising prices for many products due to inflationary pressures and ongoing supply chain disruptions may create operational challenges for some companies.
Below, we discuss key themes impacting M&A across consumer markets and highlight those sub-sectors where we expect high levels of investor interest to continue to generate significant deal activity over the next six to 12 months.
“Exciting new opportunities for dealmakers lie ahead in consumer markets. Corporates and private equity will be busy in 2022 using M&A to remake their portfolios, as changing consumer preferences create demand for new products and services and entirely new business models.”
Deal volumes and values increased between 2020 and 2021 in all sectors of consumer markets and across all three regions. Europe, the Middle East and Africa (EMEA) experienced the highest growth in deal volumes and values, at 31% and 94% respectively. Overall global deal values in consumer markets increased by 57% year over year, boosted by an increase in the number of megadeals—those with a deal value greater than US$5bn—from 13 to 19 and an increase in deals in the US$1bn to US$5bn range of 84%, from 69 in 2020 to 127 in 2021. The consumer markets sectors saw increased M&A from PE funds, which accounted for approximately 35% of deal volume and 47% of deal value in 2021, a notable increase compared with the average over the previous five years of 24% and 35%, respectively.
We anticipate the following will be M&A hotspots during 2022:
Home and garden businesses (such as home furniture, home decor, garden and outdoor equipment, and home storage solutions) received a boost during the pandemic, as consumers adapted to more time at home. Strong demand in 2022 is likely, as hybrid working is expected to create further demand for home office spaces and consumers continue to spend on home remodelling. Recent deal examples include Assa Abloy’s announced acquisition of the Hardware and Home Improvement division of Spectrum Brands and Husqvarna Group’s announced acquisition of Orbit Irrigation Products.
Growing levels of pet ownership make pet products—and the adjacent veterinary products and services—highly attractive sectors for dealmakers. A number of recent deals indicates these sectors will remain hot in 2022, including KKR's acquisition of Natural Pet Food Group, a New Zealand-based premium pet food company, and PE firms Hellman & Friedman and EQT's announced delisting of Zooplus, a German pet supplies online retailer.
Casual wear, including athleisure, has become the hottest segment of the fashion sector, attracting interest from corporate and PE investors, as those working from home opt for comfortable clothing over more formal office attire. We expect more lifestyle apparel M&A as investors perceive consumers returning to leisure travel and other leisure activities.
Health and beauty, particularly online beauty retail, remains attractive, as M&A is used as a means to acquire complementary business models or gain a route into new geographical markets. Deals among established players include Sephora’s acquisition of Feelunique, a UK-based online prestige beauty retailer, and L’Occitane’s announced acquisition of US-based Sol de Janeiro. Start-up direct-to-consumer beauty companies, such as India-based MyGlamm and Purplle, are also pursuing inorganic growth strategies—using capital raised through recent financing rounds to acquire brands to broaden their offerings and expand overseas. Consumer trends in cosmetics, such as a return to colour, will likely trigger M&A as larger players seek to acquire niche brands.
The growing interest in the metaverse is an opportunity for consumer-facing companies to further shape the landscape. Virtual showrooms, fashion shows and dressing rooms offer the potential to sell more physical goods, and some companies are experimenting with virtual goods.
The grocery sector remains of interest among investors, particularly PE, following recent takeovers of Asda and Morrisons in the UK, due to a general belief that grocery assets may be undervalued, in part because of their property portfolios.
Hospitality and leisure, one of the hardest-hit sectors during the pandemic, has shown signs of recovery as restrictions ease, prompting several gaming and hotel deals, including Hilton Grand Vacations’ acquisition of Diamond Resorts, MGM’s announced acquisition of The Cosmopolitan of Las Vegas and Philippines gaming resort operator Okada Manila’s plans to merge through a SPAC deal. A staycation boom prompted by international travel restrictions has led to a number of deals announced in the vacation sector—for example, PAI Partners’ acquisition of European Camping Group, an operator of premium campsites in France, Italy, Spain and Croatia, and Sun Communities’ proposed acquisition of Park Holidays UK, an owner and operator of holiday communities in the UK—suggesting that investors are betting on demand lasting beyond the pandemic. We expect that further M&A in gaming, casinos, hotels and other tourism-related areas will take place in 2022.
Airlines and the air travel sector will likely generate further distressed deal-making or restructuring, as government support is phased out in many countries. Many investors are optimistic about opportunities for M&A in 2022, anticipating that consumer confidence will return, bringing with it a more steady volume of passengers from business and leisure travel.
As part of a broader trend in portfolio reviews, we expect to see a number of divestitures by large corporates across the consumer markets sector. These follow recently announced divestitures, including Adidas’s announced sale of Reebok to Authentic Brands Group, Unilever’s sale of its global tea business to CVC, Reckitt Benckiser’s sale of its Infant Formula and Child Nutrition business in China to Primavera Capital Group and PepsiCo’s announced sale of Tropicana, Naked Juice and other select juice brands to PAI Partners. As with these recent deals, PE buyers will likely show strong interest in acquiring these brands.
We also see a trend towards further corporate demerger activity in 2022, due to shareholder pressure to unlock greater value and the growing belief among CEOs that the ability to quickly react to changing customer behaviours and business model disruption may outweigh the benefits of scale, resulting in further corporate restructuring. Recent consumer examples include plans announced by GlaxoSmithKline, Johnson & Johnson, and Sanofi to spin off their consumer healthcare businesses into separately listed companies. In the retail sector, Saks has announced plans to spin off their online retail business from their brick-and-mortar stores, as activist shareholders prompt other large retailers to explore a demerger as a strategic option.
Supply chain disruptions continue to impact sourcing of raw materials and transportation of finished goods to customers. As a result, some of the world’s biggest retailers, such as Ikea, Walmart, Target and Home Depot, are either acquiring their own containers or chartering ships to get high-priority goods in on time. Others are making strategic capabilities-driven acquisitions. For example, American Eagle Outfitters acquired two logistics companies, Quiet Logistics (focused on technology and robotics around fulfilment services) and AirTerra (focused on parcel delivery), as it seeks to transform its supply chain.
Companies in the consumer, retail and logistics sectors will increasingly use mergers and acquisitions to find creative ways to remove barriers, build resilience and create value throughout the supply chain. We expect the following areas of focus:
In addition, the logistics sector is in a race to win the last mile, creating intense competition, particularly among shipping carriers. As a result, speciality logistics companies may become M&A targets from other consumer markets companies. We also expect acquisitions among logistics companies who are looking to expand by acquiring speciality capabilities, or through international reach. Examples include Maersk’s announced acquisitions of Visible SCM, HUUB, B2C Europe and LF Logistics to aid the company’s e-commerce logistics expansion; CMA CGM Group’s announced acquisition of Ingram Micro’s Commerce & Lifecycle Services business to accelerate the company’s supply chain capabilities in contract logistics and e-commerce expertise; Deutsche Post DHL Group’s acquisition of J.F. Hillebrand Group to strengthen DHL’s freight forwarding division; and GeoPost’s investment in Aramex, intended to leverage GeoPost’s strong presence in the European parcel delivery market and Aramex’s international network in the Middle East, Asia, Africa and Oceania.
Online platforms and e-commerce companies are doing some shopping of their own, as they use M&A to acquire capabilities, expand into adjacent categories and gain market share.
The fashion rental and resale sub-sector is expected to gain traction in 2022, as many well-known fashion brands are eyeing the potential of moving into this area. The sub-sector is maturing from one primarily dominated by start-ups to one where the brands and retailers are offering the service directly to customers to complement their regular sales, often in partnership with a specialist firm. Examples of this are Kering’s recent investment in second-hand resale company Vestiaire Collective and Etsy’s announced acquisition of fashion resale marketplace Depop.
Furthermore, the growing trend of ‘conscious consumerism’—buying practices driven by a commitment to making purchasing decisions that have a positive social, economic and environmental impact—is reshaping business models and generating interest among investors, as they seek to rebalance portfolios with more sustainability-focused companies. Lululemon is an example of a company which has used M&A and strategic partnerships with companies such as Genomatica, Bolt Threads and Debrand to develop more sustainably sourced materials or recycle products.
The M&A outlook for consumer markets in 2022 remains strong as companies continue to innovate and digitalise their businesses in response to changing customer preferences and new emerging business models. The expected increase in distressed-asset sales and restructuring in certain sub sectors, will only add to the already robust dealmaking environment.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2021 and as accessed on 2 January 2022. This has been supplemented by additional information from Dealogic and our independent research, and includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping.