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Global M&A Trends in Consumer Markets: 2021 Mid-year Update

Deal values in consumer markets have trebled compared to early-pandemic levels—positioning M&A as a central element of economic recovery.

M&A activity has endured despite the pandemic, with a strong rebound in deal values in the first half of 2021, continuing from the last quarter of 2020. The hastening of long-term fundamental shifts already occurring in the retail, consumer, hospitality and leisure sub-sectors, together with the high availability of capital, low prevailing interest rates and government stimuli, has led to an acceleration in deal activity. Deals values have not only trebled in early 2021, compared to levels seen at the beginning of the pandemic in early 2020, but have also surpassed pre-pandemic quarterly levels of 2019.

The last 12 months has seen a rise in capability-driven M&A as businesses look to acquire critical capabilities to satisfy changing consumer preferences—whether by outright acquisition, alternative M&A solutions, such as partnerships, strategic alliances, or by taking minority stakes. Much of the year’s deal activity reflected portfolio optimisation, as a tool to stay agile and deleverage, and a rise in environmental, social and governance (ESG) awareness amongst both consumers and investors. Additionally, the capital markets across the globe have seen a V-shaped trajectory over the last 12 months, with record levels of public listings, comprising traditional IPOs and special purpose acquisition company (SPAC) mergers—the latter being particularly popular in the US and to some extent in Asia-Pacific and Europe.

However, the full impact of the COVID-19 crisis has yet to unfold. The pandemic has adversely affected large pockets of retail, hospitality and leisure sub-sectors, some of which have enjoyed temporary relief in the form of government support and aid packages. Companies that use this period to reshape their business models and accelerate the transformation that was already underway will emerge stronger. And in some instances, we expect there will be a further increase in restructuring-led M&A activity particularly during the second half of 2021, as the relief measures come to an end.

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“The first half of 2021 saw a continuation of several themes, from the rise of capability-driven M&A, to alternative M&A solutions, to portfolio optimisation and a surge in public market listings. We expect these trends to continue for the remainder of 2021.”

Neil SuttonGlobal Consumer Markets Deals Leader, partner on secondment to PwC Hong Kong

M&A hotspots

The retail, consumer, hospitality and leisure sub-sectors included several M&A hotspots for the first half of 2021, many of which we expect to continue for the remainder of the year and beyond:

  • Grocery, health, and wellbeing performed strongly in the first half of 2021 and maintained their position as category winners. Over the course of the pandemic, ethical consumerism gained greater momentum, leading to an uptick in M&A activity involving clean, sustainable, and personalised brands considered healthy for the individual, society, and the world at large.
  • M&A activity in the pet industry has also increased with growing demand for premium consumables and veterinary services.
  • Certain pockets of retail, such as home improvements, have benefitted from increased time spent at home and will continue to see a boost as hybrid working models become more prevalent.
  • Pre-pandemic movement towards ESG factors such as decarbonisation, sustainable sourcing, production of goods, ethical supply chains and brand perception have accelerated in the past 18 months and become integral to investment decisions across the deals landscape. 
  • Across the retail, consumer, hospitality and leisure sub-sectors, there has been a fundamental shift towards direct-to-consumer sales, leading to a rise in partnerships and collaborations between businesses, particularly those with online platforms. The pandemic has accelerated capability-driven M&A with an uptick in deals in last-mile delivery, notably on-demand grocery delivery, logistics and technologies supporting the direct-to-consumer channel.
  • Consumer markets businesses are seeing increasing convergence with technology and pharma as businesses seek to innovate to remain relevant.
  • We have seen an uptick in distressed M&A transactions and consolidations, particularly amongst brick-and-mortar non-food retailers (fashion apparel and department stores) and certain pockets of hospitality and leisure (travel, hotel, and restaurants). There has also been a greater interest in purchasing brands in the UK from distressed situations to consolidate into or collaborate with existing high street names. For example; the purchase of the Jaeger brand by Marks & Spencer, the collaboration between Next and the Laura Ashley brand recently purchased by Gordon Brothers and the collaboration between Boots and the Mothercare brand. All these brands were sold by the respective retailers following an insolvency process.

Key themes driving M&A activity

Constant redefinition of the core

Portfolio redefinitions continue to be a key driver of M&A activity in the first half 2021, continuing a trend seen during 2020. Large retailers, FMCGs and conglomerates have shown resilience and remain focused on value-creation strategies as they look forward. They continue to engage in M&A transactions to create value, either through a combination of acquisitions in growing categories, channels, and markets or through divestitures of non-core business components and planned exits from non-strategic markets.

For example, in March 2021 Nestlé announced the sale of its North American regional waters business to One Rock Capital Partners, in partnership with Metropoulos & Co., as it continues to transform its global water business, which includes focusing on international premium global brands. Similarly, Philips announced the sale of its domestic appliances business to global investment firm Hillhouse Capital, in order to focus on its health technology business. Following the sale in late 2020 of its natural cheese business to Lactalis, in February 2021 Kraft Heinz announced it had agreed to sell its Planters nuts business to Hormel Foods, as it continues to deleverage and use agile portfolio management to unlock growth. For similar reasons, following a strategic review of its Infant Nutrition and Child Nutrition business in China, Reckitt entered into a definitive agreement in June 2021 to sell the business to private equity (PE) firm Primavera Capital Group.

constant-redefinition

In the UK, we have seen increased PE interest in the grocery sector by large private equity firms, who view them as undervalued or attractive due to their large property portfolios. In February 2021, The Issa brothers and PE firm TDR Capital acquired a majority stake in Asda and Wm Morrison has more recently been the subject of interest from certain US PE funds competing to take the UK supermarket chain private.

In addition to portfolio reviews and carve-outs, we have seen an increase in corporate M&A triggered by value preservation strategies as companies look at strategic options for long-term competitive advantage. Corporates with deep pockets and PE firms with available capital will be on the lookout for such opportunistic M&A deals.

Buying into the new 'rule breakers'

Several macro trends, such as digitalisation, direct-to-consumer sales, convergence of technology with in-store experiences, contactless delivery/payment options, ESG, and diversity and inclusion (D&I) considerations, have intensified and accelerated over the course of the past 18 months. Many of these reflect capabilities and business models that new entrants, or ‘rule breakers,’ have been using to disrupt the traditional landscape of retail, consumer, hospitality and leisure businesses for some time. So, while some businesses have pre-existing capacity to grow through innovation and disruption, others are hoping to add such capabilities by acquiring rule breakers.

Nestlé, for example, continues to bolster its direct-to-consumer channel. In April 2021, it announced the acquisition of The Bountiful Company, a US-based pure play leader in the vitamins and supplements category. In the same month, Unilever announced plans to acquire US-based Onnit, a health and wellness brand with a strong digital platform for its loyal consumer base. Also in April 2021, Southeast Asia–based ride hailing and food delivery firm Grab announced its plans to go public via a SPAC, Altimeter Growth Corp, making it the world’s largest SPAC merger at the time. More recently, in May 2021, KKR announced the acquisition of New Zealand–based sustainably sourced high-meat pet food business, Natural Pet Food Group. The rapid growth of e-commerce, an increasing focus on health and wellness, conscious consumerism, and continued growth of collaborative consumption made these businesses attractive investment opportunities.

smiling women checking smartphone

Disruptors make attractive acquisition targets for corporates, PE firms and SPACs, and we expect such deals to continue to be a big part of the sector’s deal activity over the remainder of 2021 and into 2022.

Building in super-resilience

Retail, consumer, and leisure companies have been compelled to infuse operational and financial resilience into their business models to avoid becoming obsolete, distressed, or potential takeover targets. They continue to turn towards M&A for value preservation and creation strategies as conventional business models come under threat. Many are looking at M&A to diversify their supply chains, integrate vertically, embark on digital transformation and preserve liquidity. Others are planning restructurings to build resilience.

Convergence of online and physical consumer shopping experiences continues with e-commerce and physical players increasingly using M&A deals to expand market share, gain access to consumer data, and acquire new channels. Alibaba, for example, with its acquisition of a controlling stake in Sun Art Retail, a Chinese hypermarket and supermarket retailer, is hoping to leverage its digital presence and access more customers by offering a fully integrated online and physical shopping experience. In Japan, KKR and e-commerce retailer Rakuten came together to acquire a majority stake in Seiyu, a local supermarket chain, for similar reasons.

In addition to engaging in M&A activity, businesses have spent the past 12 months entering into partnerships to access new markets and channels and to leverage digital capability. For example, Marks & Spencer in the UK has agreed to sell third party brands both on its website and in stores to broaden its appeal and accelerate online growth. In June 2021 the Carrefour Group unveiled its Links platform as part of its new data and retail media strategy—developed in partnership with three digital marketing companies the platform is designed to better meet customer expectations by creating more personalised experiences both in-store and online.

super-resilient

Additionally, the past few months has seen a rise of on-demand grocery delivery partnerships. For example, UK supermarket Morrisons has partnered with Amazon for grocery delivery services to increase online sales and offer faster delivery times, and Tesco is trialling rapid grocery deliveries with a new one-hour service called Whoosh.

We expect these trends to continue, both in the form of traditional mergers and acquisitions and alternatives via strategic alliances and partnership arrangements.

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M&A outlook for consumer markets 

The pandemic served as an inflection point for the large-scale disruption facing the retail, consumer and leisure businesses, accelerating digitalisation, innovation, direct-to-consumer sales and ESG considerations. M&A is seen as an essential part of helping businesses to stay agile, embedding resilience, in order to preserve and create value. 

The direct impact of the pandemic on brick-and-mortar retailers and hospitality and leisure businesses will unwind fully over the course of 2021, as economies open and government aid and relief measures come to an end. This will lead to more consolidation and distressed-asset sales, and we expect an uptick in the number of failures, particularly involving businesses with outdated and challenged business models. 

Over the course of 2021, we expect high liquidity levels to continue to drive M&A activity under the three themes discussed above, to encourage collaborations and partnerships, and to result in more IPOs, SPAC mergers, and a rise in restructuring-led M&A activity.

value-creation

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 30 June 2021 and as accessed on 5 July 2021. This has been supplemented by additional information from Dealogic and our independent research. This document 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. We define megadeals as transactions with a deal value greater than US$5 billion.

Contact us

Neil  Sutton

Neil Sutton

Global Consumer Markets Deals Leader, partner on secondment to, PwC Hong Kong

Sabine Durand-Hayes

Sabine Durand-Hayes

Global Consumer Markets Leader, PwC France

Christian Wulff

Christian Wulff

EMEA Consumer Markets Leader, PwC Germany

John Potter

John Potter

US Consumer Markets Deals Leader, PwC United States

Waldemar Jap

Waldemar Jap

China Consumer Markets Deals Leader, PwC Hong Kong

Lisa Hooker

Lisa Hooker

UK Consumer Markets Leader, PwC United Kingdom

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