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Consumer-facing companies are contending with a dynamic environment that includes constantly changing consumer preferences and evolving technologies as well as optimization of brand portfolios, pricing and scaling. This environment of rising interest rates, inflation, tightening of capital markets and geopolitical uncertainty creates disruption and opens key strategic opportunities. That makes M&A an important strategic capability for consumer markets (CM) companies. Even though recent deal volumes and average values have declined from 2022, they are in line with similar deal volumes from 2020, which was a normal deal volume year. However, the hospitality and leisure subsector, along with fourth-quarter 2022 megadeals in the grocery store and specialty retail spaces, has been a recent bright spot in CM.
CM companies remain resilient and have various deal levers to pull. Divesting non-core assets or unprofitable brands or products can expedite the reallocation of capital assets and increase value creation. Frequent proactive portfolio reviews, validated with data-driven insights and completed with speed, are key to informing decision-makers in today’s uncertain environment. Retailers are continuing to innovate: They are using technology and store spaces differently, focusing on customer loyalty programs and catering to ever-evolving customer preferences.
Transformative acquisitions — followed by successful integration that requires a focus on key talent retention — are enabling companies to diversify offerings and tailor them to consumers' needs, helping to drive value creation.
Two CM megadeals (each $5 billion-plus) announced in fourth quarter 2022 in the grocery store and specialty retail subsector positively impacted the average deal value. While average deal values have dropped 31% from fiscal year 2021 to the last 12 months of fiscal year 2023, unprecedented and record-high transaction multiples have prevailed. Deal values are expected to continue to normalize as transaction multiples drop, valuations become more attractive and the speed of dealmaking returns to a typical pace. However, it is unclear if that will occur in fiscal year 2023 or 2024.
CM deal volume has declined in the first half of the year, as expected, due to persistent macroeconomic impediments and a slower than anticipated rebound during the start of fiscal year 2023. Nevertheless, overall deal volumes have remained consistent in the last 12 months in comparison to fiscal year 2022.
Financial and strategic acquirers alike have focused on domestic deal activity, which represented approximately 75% of deals in the last 12 months.
Across subsectors, we still expect to see a healthy level of fiscal year 2023 M&A activity in the latter half of the year, as businesses’ focus remains on increased profitability, portfolio diversification and optionality for consumers. The quickest way to achieve these goals is the successful execution of transformative acquisitions. However, deal values and volumes may not return to 2021 levels until 2023 or 2024.
Companies are increasingly turning toward transformative acquisitions, according to a new PwC M&A integration report. Successful integrations across strategic, financial and operational measures are increasing, though they are still broadly elusive. Experience and sustained investment in key value drivers throughout the integration process drive success. However, survey respondents also noted that talent retention, a detailed value creation plan and the acceleration and integration of technology were also notably important to integration success.
Companies noted that the toughest hurdle was cross-functional integration, which has been especially true in transformational deals. Companies can use digital accelerators to enhance the integration of cross-functional areas, which successful M&A organizations overwhelmingly did. These organizations ultimately saw greater achievement in their go-to-market objectives — providing a roadmap for others to follow for a more successful M&A integration.
Learn more about leading practices and transformational mindsets in PwC’s new M&A integration report.
“Frequent and proactive portfolio reviews, validated by data-driven insights and disaggregated by product or brand, will aid decision-makers in navigating uncertainty and global headwinds. Divestitures and transformational acquisitions remain crucial for innovation, profitability and ultimately, value creation - for consumer and shareholders alike.”