Consumer markets: US Deals 2023 outlook

Consumer markets M&A summary

The consumer markets (CM) sector faced a mix of factors during the second half of 2022. Consumer sentiment declined as spending dropped on nonessential goods and services. Holiday spending is projected to be strong, but bargain shopping could increase top-line results while putting margins under pressure.

Uncertainty still prevails in the market, which is experiencing inflationary pressures, geopolitical risk, challenging financing costs and continued pressure around labor shortages and input cost increases — issues we expect to gradually ease throughout 2023. CM companies continue to focus on scale, technology and customer experience as key competitive advantages.

Rising interest rates have restricted debt markets, contributing to a decline in M&A activity in the second half of 2022. But while deal volume is down compared to FY21, it is similar to pre-COVID periods. And even though there are complicating factors, we still expect plenty of capital and investment opportunities to be available for deals in 2023. 

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Consumer markets sector outlook

Given the unprecedented level of M&A activity in 2021 — coupled with inflationary pressures, increased interest rates and other headwinds — CM deal volume declined, as expected, in Q3 and Q4. CM deal volume dropped ~27% in the last 12 months, normalizing to FY20 levels. 

Average deal value also dropped ~34% compared to all of 2021, when valuations were at record highs. Two megadeals ($5 billion plus) were announced in the grocery, drug and discount subsector, which increased average deal value. Despite that, deal values may continue to drop as transaction multiples return to attainable values and small-to-midsize M&A activity gains momentum.

Financial and strategic acquirers increased their deal activity cross-border by 8% in the past 12 months when compared to FY21, when more deals were conducted domestically. In the past 12 months, consumer packaged goods comprised ~37% of deal volume, followed by retail and hospitality and leisure, which began to rebound in Q1 and Q2 — driven by a few select-service larger hotel deals — followed by tempered growth in Q3 and Q4. Across subsectors, we expect to see a healthy level of FY23 M&A activity, given the remaining capital to deploy and continued eagerness to fuel business transformation. Deal size, type (strategic partnership, minority investment, etc.) and domestic versus cross-border may shift to navigate uncertainties and adapt to a rapidly changing M&A deal environment.

The power of portfolio renewal 

Divesting non-core and underperforming assets is a powerful transformation lever

Market headwinds will continue in 2023, but this will provide an opportunity for dealmakers to reassess their portfolios against their growth strategies. The current environment is uncertain and complex, but the need to optimize portfolios, ensure supply chain resilience and manage geopolitical risk has never been greater. Timely divestiture decisions, combined with a well-executed strategy, can help increase the chances for value creation and free up capital for other critical investments. An upcoming PwC study found that about a third of CM respondents actively embrace divestitures, possibly indicating a missed opportunity for some companies in the sector.

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Sub-sector outlook


M&A will remain active in the CM sector, but the pace of dealmaking has normalized and there is reduced competition for assets. Even so, consumer demand for food and beverage and personal care products remains strong, and this has boosted M&A activity in these subsectors. 

Corporates continue to implement price increases to offset margin pressure from cost inflation. Higher pricing has resulted in strong revenue growth at many CM companies in recent quarters, despite a dip in volume.

The sector also continues to see inventory/supply chain challenges that affect the ability to meet consumer demand. Some CM companies are using price increases on certain brands as a lever to manage demand in the face of volume constraints.

Thoughtful portfolio reviews and timely, well-considered divestitures can be a critical part of the transformation and reconfiguration process and may insulate companies from further economic uncertainty.


Brick-and-mortar stores face headwinds in consumer confidence, inflationary pressures, excess inventories and continued labor shortages. Despite these challenges, savvy retailers will continue to invest in their long-term strategies of omnichannel, digital and supply chain transformation. Opportunities exist to acquire enabling capabilities and technologies by leaning into M&A at this time when valuations may be more palatable.  

We expect small and midsize deal activity to continue to be strong in the new year, while mega deal activity may take longer to pick up in light of recent unsuccessful sale processes, antitrust concerns and high financing costs.

Many retailers and brands are using partnerships to find the highest use of in-store space, while the proliferation of curbside/delivery/shipping options has led to creative use of excess store space. Success or failure of these strategies in delivering growth will dictate whether alliances and resourcefulness are enough, or whether inorganic acquisitions are required. 

Hospitality and leisure

The hospitality sector made significant strides in its recovery in the second half of 2022, largely driven by continuing improvement in leisure demand through the summer months, as well as the reemergence of individual and group business travel. In addition to strong leisure performance, the summer months exhibited the return of in-person conferences and meetings, which helped to reestablish the midweek demand base.

Despite the significant improvement in operating conditions, M&A activity has remained muted due to a combination of factors, including high financing costs and valuation concerns given somewhat uncertain visibility into continued recovery. Real estate asset transactions have been driven by select-service hotels, which have contributed to more than half of the transaction volume so far this year. 

Given the still uneven pace of recovery and increasing downside risk factors, M&A transaction volume is expected to be limited during the next six months. We expect limited midsize deal activity to be driven by the continued efforts of hospitality companies to optimize their portfolios through evaluation of strategic opportunities.

“While we don't anticipate deal activity at 2021 levels, we do still anticipate dealmaking will continue in 2023 as executives remain relentlessly focused on delivering on their strategy and growth.”

— Alberto W. Dent, US Consumer Markets Deals Leader

Key deal drivers

Thoughtful portfolio reviews, disciplined approach

With the pace of dealmaking slowing amid an uncertain economic backdrop, companies should take the opportunity to thoroughly review their portfolios. Assessing gaps in portfolios, profitability and overall corporate strategic objectives — across markets, categories, products and channels — will remain key for CM companies in the months ahead.  As inflationary headwinds — driven by commodities, packaging and freight, coupled with reduced macro visibility and an ever-changing environment — potentially slow the pace of M&A, companies may have an opportunity to reassess positioning and adjust for the future. For CM corporates and financial buyers alike, this will give leaders more time to revisit brand portfolios and supply chain strategy, as well as time to take steps to right-size inventory levels and evaluate consumer satisfaction, including the elasticity of strategic price increases.

Companies that have prudently managed balance sheets will have increased opportunities for M&A given high capital availability and a return to a normalized pace of deal-making, as more leveraged buyers may be priced out of the market. Higher interest rates, increased cost of debt and other uncertainties may lead to reduced competition for assets.

Smaller bolt-on acquisitions, joint ventures or minority interests could be an effective way to acquire on-strategy capabilities or an expansion outside of core competencies. Divesting underperforming or non-core assets continues to be a potentially successful avenue for near-term and long-term value creation.

Supply chain management, price increases

Consumer-focused companies face a myriad of uncertainties but continue to display resiliency. Inflation remains persistent, stemming from elevated commodity, packaging and labor costs. Similarly, freight costs remain sticky, though shipping and transportation backlogs have eased and lead times have been reduced, alleviating some of the most severe supply chain concerns. Many retailers have implemented strategic price increases to defend against margin compression, though this has been offset by discounts in certain channels to clear excess inventory build. 

Improving inventory management and supply chain resiliency, while returning to normalized stock levels, remain key points of focus on CM deals. Big-box retailers have seen margin compression as excess inventory is cleared out, and they have had to consider elasticity of pricing on consumer products. Strategies include the realignment of supply chains — including assessing alternative supply chain options, such as acquiring distribution centers or securing own-dedicated supplies. Data collection and predictive analytics can aid in evaluating these issues and fueling business transformation.

Geopolitical instability, pending regulatory changes and antitrust concerns are additional factors fueling uncertainty. Given the continued uncertainty with China’s COVID-Zero policy, the war in Ukraine and ongoing energy infrastructure issues, companies may need to reevaluate their operations and prepare for a new normal in Europe and Asia. All these factors will weigh on M&A activity and influence decision-making in the deals space.

Focus on consumer’s social responsibility

It’s becoming the norm for consumers to expect companies and brands to focus on social responsibility initiatives. Consumers and investors alike have a heightened commitment to social responsibilities, including environmental, social and governance (ESG) and diversity, equity and inclusion (DE&I) efforts. Consumers often align with brands that focus on sustainable sourcing, eco-friendly packaging, recycling/upcycling and health. For companies with a complex ecosystem, this poses a higher hurdle to meet consumer expectations. Similarly, heightened political rhetoric surrounding the value of ESG labels adds a wrinkle to the equation.

When assessing near-term and long-term stakeholder value, CM executives should weigh the benefits of holding or divesting assets in the face of potentially declining transaction multiples, higher capital costs and inflation. Timely, well-considered divestitures can be a critical part of the transformation and reconfiguration process and may aid in insulating CM companies from further economic uncertainty. 

Strengthen cybersecurity, labor market transformation

It’s critical for CM companies to provide data security and privacy, mitigate security risks and address technological deficiencies. As accelerated growth in digital commerce has been tempered in recent periods and consumers have returned to brick-and-mortar stores, retailers should focus on and prioritize payment information, customer profiles and consumer identity security. Investments, whether internal or via acquisition, should establish standards and protocols aimed at minimizing cyber risk and prioritizing informational integrity.

The transformation in the labor market has continued. Despite an uncertain economic outlook, companies are still competing to attract and retain talent in a tight labor market. Concessions and shifts in the way employers view work-from-home/remote work expectations, flexibility, compensation, employee health and training are ongoing and necessary to secure the most desirable applicants.

Contact us

Alberto Dent

US Consumer Markets Deals Leader, PwC US

Amanda Giordano

Retail Deals Champion, Partner, PwC US

Renier van Aswegen

CPG Deals Champion, Partner, PwC US

Jeanelle Johnson

Principal, PwC US

Lea Kuschel

Partner, Deals Practice, PwC US

Johanna Howles

Director, Deals Practice, PwC US

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