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Consumer markets deals insights: 2021 outlook

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M&A investments focus on strengthening core operations, building operational efficiencies, and expanding digital capabilities to build resilience and emerge stronger in the post-COVID new-normal.

The COVID-19 pandemic has changed consumer behavior and disrupted the competitive landscape of Consumer Markets. In response, companies have accelerated their operational strategies and embraced digital transformation, resulting in ample M&A opportunities.

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Challenges and opportunities for deals in 2021

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021.

PwC's Deals Sector Leader John Potter discusses the trends driving deals and outlook for 2021. Explore national deals trends

Consumer markets deals outlook

Consumer Markets companies with strong capital positions are still looking to execute on their growth strategies and are scanning the disrupted competitive landscape to take advantage of opportunities to generate greater returns. Investments in the past 12 months have grown by 7% compared to full-year 2019 as larger transactions are starting to come to market. This momentum is expected to continue, as high accessibility to capital markets and low interest rates will continue to encourage borrowing and investing.

Sub-sector outlook

Consumer companies are focused on building supply chain resiliency and capitalizing on e-commerce growth.

Consumer players continue to rationalize their brand portfolios to reduce supply chain complexities and prioritize core brands for growth and scale. Attractive high-growth categories include snacks, frozen foods, and plant-based and better-for-you products. Investments in direct-to-consumer channels and digitally native brands may help companies stay relevant amid rapid online sales growth. Emerging tech adoption will help to build further transparency across the supply chain.

Tech investments promote safer in-store experiences for customers and associates and boost operational efficiencies.

Retailers continue to reassess underperforming assets as the role of the brick-and-mortar store evolves. Increased consumer awareness of social distancing and public-health concerns will likely incentivize cross-sector investments in contactless payments and checkout technologies to create a safer in-store environment.

Enhanced supply chain and digital capabilities, including last-mile delivery, will help elevate the customer experience and improve the profitability of online operations. Restaurants continue to explore a greater shift toward drive-through and delivery services as they reassess dine-in needs.

Low demand for travel and leisure services will likely drive industry consolidation.

Hospitality and leisure companies are focused on attracting travelers with flexible loyalty programs and increased safety measures, as business-travel demand remains suppressed. Consolidation is expected among smaller hotel chains in an effort to reduce operational costs. Online gaming and sports betting operators have become an attractive target, particularly for established casino players with large physical footprints.

“M&A is an important lever for Consumer Markets companies as they continue to navigate the current environment and position themselves for success in the years to come.”

John D. Potter, US Consumer Markets Deals Leader

Key deal drivers

COVID-19 has accelerated underlying consumer trends, and some may persist as a preferred model.

As remote work and social distancing remain commonplace, demand for at-home services, home improvement products and services, and entertainment continues — including at-home fitness, gaming and cooking products. In addition, demand for household products remains high, and stockpiling behavior may extend in waves as COVID-19 cases continue to rise. E-commerce and digital service adoption will likely become permanent, with shoppers relying on curbside pickup and contactless services that promote safety and distancing.

The pandemic’s impact on CM will lead to bifurcating trajectories across and within sub-sectors.

Grocery, mass merchants and select consumer packaged goods segments have benefited from increased at-home consumption, but demand is expected to stabilize over time. Suppressed demand continues to generate stress across travel, leisure and some non-essential retail segments, including department and specialty stores. It may be years before demand recovers to pre-COVID levels for the hospitality and leisure sub-sector.

Tech and digital capabilities boost consumer engagement and create a differentiated shopping experience.

Due to accelerated e-commerce growth, live streaming and influencer marketing on social media have become key digital strategies. Contactless tech adoption will continue, as it helps create a safe and convenient shopping experience. Augmented reality (AR) and virtual reality (VR) technologies will likely continue to gain traction, as virtual try-on tools help improve online conversions. Companies will also focus on building automation and robotic capabilities to achieve economies of scale and generate supply chain efficiencies.

Geopolitical shifts heighten the need to rethink markets and supply chains and build resiliency.

Deglobalization trends, government-mandated lockdowns, and further restrictions on immigration and travel have redefined markets and created supply chain risk and disruption. Reduced lead times, improved quality control and added flexibility have made nearshoring an attractive strategy. Political shifts in trade and tariff regimes continue to influence where and how companies play. In this dynamic environment, vertical integration to boost control and transparency across networks and routes to market has racked up an increasing share of deals.

Special-purpose acquisition companies (SPACs) are becoming popular alternatives to raise capital amid high levels of dry powder.

Consumer Markets companies are focused on raising and preserving liquidity after temporary operational restrictions and muted consumer demand resulted in weakened balance sheets. These companies have tapped their credit lines and implemented cost-reduction measures to boost liquidity. For private companies, SPACs have become a faster way to raise capital than a traditional IPO. SPACs will likely remain active as private equity capital availability remains high. That being said, the availability of capital remains a fundamental driver to ongoing investment.

Contact us

John D. Potter

Partner, Consumer Markets Deals Leader, PwC US

Amanda Giordano

Partner, Deals Practice, PwC US

Lea Kuschel

Director, Deals Practice, PwC US

Russell Monco

Director, Deals Practice, PwC US

Chris LaPorta

Director, Deals Practice, PwC US

Marjolene Nowicki

Manager, Intelligence, PwC US

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