Consumer markets deals insights: Midyear 2020

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M&A activity persists in the recession, with $40.6 billion of Consumer Markets investments in the first half of 2020, and more is on the horizon

The recession and COVID-19 pandemic has changed the playing field for M&A, shifting the buyers and sellers, and accelerating the changes underway in the industry. Private investors lead sector investments as the availability of capital and low interest rates have created a favorable investment environment. Strategic acquirers need to focus on building supply chain flexibility, strengthening e-commerce and last-mile capabilities, and investing in emerging tech as consumer behaviors and demands continue to evolve through the pandemic and its aftermath. 

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“Though the past two decades have emphasized lean and efficient companies as the business model worthy of envy, recent events have shifted focus to resiliency and customer experience.”

John D. Potter, US Consumer Markets Deals Leader

High level trends and highlights

The COVID-19 pandemic has led to mixed performance among Consumer Markets (CM) players. As governments mandated the temporary closure of non-essential businesses and imposed travel restrictions, apparel and footwear retailers and hospitality and leisure operators experienced revenue constraints and financial distress. Yet grocery, mass merchants, and select consumer packaged goods (CPG) segments thrive as shoppers certain categories experienced sharp demand uptick, scarcity of supply, and a shift to in-home consumption.

CM M&A volume and value in H1 2020 declined 34% and 10%, respectively, in comparison with H1 2019. While investors remain cautious due to the current economic scenario and trade uncertainties, the availability of capital, coupled with low interest rates and declining valuations, should create M&A opportunities in 2020. We expect M&A to be robust in the coming quarters..

The consumer subsector continues to lead M&A activity with 50% of total transaction volume in H1 2020. As consumers spend more time at home, subsector investments focus on product categories exhibiting strong growth and improved margin profiles, including comfort and functional foods, and healthier snacks.

The hospitality and leisure subsector recorded an average deal size of $474.2 million in the first half of 2020, the highest among all three subsectors. The largest hospitality and leisure deal announced in H1 2020 was Blackstone Group’s acquisition of IQ Student Accommodation Group, a London, UK based rooming and boarding houses operator, for $6.1 billion.

Retail M&A investments in H1 2020 grew 71% from H1 2019, as subsector investments focused on reconfiguring supply chains and adapting to growing e-commerce and omnichannel operations. The largest megadeal announced in the period belonged to the retail subsector: Netherlands-based Just Eat Takeaway.com NV’s pending acquisition of Grubhub Inc., a provider of online food delivery services, for $7.3 billion. 

US domestic deals accounted 68% of deal volume and 46% of investments in the first half of the year. The continued pivot to multiple nodes of operation, ongoing trade uncertainties, and growing confidence in the US economy relative to other nations have created a favorable environment for domestic deals. This is also leading to a reshuffling of geographic portfolios as businesses focus on the markets and supply chains required to deliver customer experience.

Heightened scrutiny on foreign investments is making cross-border trade and investment increasingly difficult, leading to a 46% decline in cross-boarder value in H1 2020 from the peak recorded in H2 2019. Still, five of the 10 largest deals announced in the first half of 2020 were cross-border deals, led by the two megadeals announced in the period.

The US dominated Consumer Markets deal volume as a target region in the first half of 2020 with 442 deals announced in the period. US local and inbound deal volume remains strong in 2020, experiencing 3% growth in Q1 2020 from the previous quarter.

US outbound deals accounted for 25% of H1 2020 transaction value, with the Europe region representing 74% of total outbound investments. Larger outbound transactions in the Europe region have been driven by private equity investments in the hospitality and leisure subsector. With parts of the European economy dependent on tourism, hospitality and leisure players have experienced financial distress due to a decline in travel demand resulting from COVID-19, creating an attractive M&A opportunity for US financial investors.

We expect US inbound activity will begin to recover as the US phases out of lockdown and foreign investors seek growth abroad.


Highlights of deal activity


Consumer Markets subsector analysis

The dispersion of impacts within and across the subsectors will create pockets of strength, distress, and resilience that will shape the M&A landscape. Of the three CM subsectors, consumer continues to drive M&A activity and represented 50% of all deals announced in the first half of 2020. The food and beverage (including alcohol) category constituted 42% of the 264 consumer deals announced in the period, which also increased by 29% from H1 2019 to reach $8.8 billion in investments H1 2020. Four of the 10 largest deals announced in H1 2020 belonged to the category, led by PepsiCo Inc.’s acquisition of Rockstar Inc., an energy drink manufacturer, for $3.9 billion. As consumers spend more time at home, at-home cooking occasions are on the rise. Indulgent foods, snacking, and off-premise alcohol sales have become fast-growing sectors within the food and beverage category. In the household category, items like paper towels, disinfecting wipes, and other cleaning products, will continue to see increased demand as consumers ensure they can keep their homes clean and safe during the pandemic. Companies with available capital in the food and beverage, and household and personal care categories will continue to scale operations by acquiring adjacent businesses, particularly in fast-growth segments, that complement core operations across North America and international markets.

Investments in the hospitality and leisure subsector remain strong and reached $15.2 billion in H1 2020, accounting for 37% of all Consumer Markets deal value. The hospitality and leisure subsector has been significantly impacted by travel restrictions and government mandated lockdowns in an effort to prevent the spread of the COVID-19 virus. In response, casino and gaming players temporarily ceased operation, while hotel and lodging companies have reduced their workforce in an effort to cut expenses as travel demand remains suppressed. Two of the three largest deals announced in H1 2020 belonged to the hospitality and leisure subsector: Blackstone Group’s acquisition of IQ Student Accommodation Group, a rooming and boarding houses operator, for $6.1 billion, and the acquisition of the Grand Las Vegas assets of MGM Resorts International by an investor group comprised of MGM Growth Properties LLC and Blackstone Real Estate Income Trust Inc. for $4.6 billion. Together, both private equity deals represented 70% of total investments in the subsector. Under current market conditions, we expect subsector M&A activity will remain positive in the near-term as corporations continue to divest under-returning businesses to boost liquidity and reduce debt.

Retail investments were the second largest contributor to M&A volume and accounted for 34% of all transactions disclosed in the first half of the year. The largest retail deal announced was Just Eat Takeaway.com NV’s pending acquisition of Grubhub Inc., a provider of online food delivery services, for $7.3 billion. The internet/ e-commerce category led deal value and accounted for 72% of total subsector investments. E-commerce has experienced rapid growth as consumers are affected by stay-at-home orders. Accelerated demand for consumer staples and food delivery has led retail players to increase investments in strengthening their supply chain and e-commerce fulfillment capabilities. Additional investments in cold storage warehouses and distribution centers, emerging tech, and last-mile delivery will help build a competitive advantage and capture market share as online sales soar. Apparel and footwear brands, and department stores that have dealt with tariffs and rising competition over the past year and a half will further experience financial distress from store closures related to COVID-19. As the shift to online and digital shopping continues, we expect additional divestments of underutilized physical retail assets in 2020 as well as secondary banners and brands. Retail investments will focus on customer-facing online operations to improve the overall shopping experience and boost loyalty. Improving the profitability of online operations will be top-of-mind as retailers need to create the right channel mix and meet consumers where they are without sacrificing the bottom-line.


Consumer Markets deals outlook

The economic burdens and uncertainty brought on by the COVID-19 pandemic have led to rapid shifts in consumer behavior, including changes in daily routines and discretionary spending. The new ways of being impact how we consume, how we work, and broader behavior patterns.

  • Working from home has become ubiquitous due to the closure of schools and businesses and either fully remote or hybrid remote/office work may become a permanent option for some after the pandemic ends.
  • Over 48 million workers have filed for unemployment since March 2020. However, the US job market is rebounding as economies phase out of lockdown. We anticipate there may be stops and starts with resurgence of cases but that the economy will continue to recover.
  • Social distancing from family and friends has led to increased use of social media and streaming services increasing the importance of digitally native brands.
  • New hobbies such as home fitness, baking, and arts and crafts have emerged as gyms, movie theaters, and other recreational and leisure establishments remain closed. While some of these will decline when away from home options return, home fitness will likely impact gym member retention.
  • Local and international travel has rapidly declined as consumers are forced to stay in their homes, or choose to do so as a precaution. Domestic travel is seeing signs of recovery as travelers feel safer staying closer to home, but international travel will likely remain depressed for some time.
  • Consumers are shopping less often, but basket sizes are growing as shoppers continue to stock up on essentials, particularly non-perishable groceries, and household and cleaning products. As shoppers experienced limited supplies for a prolonged time, consumers will likely continue to stock up on essentials in the near future.
  • Households are increasingly relying on curbside pickup or home delivery. This shift in the experience is here to stay

Evolving consumption patterns, coupled with the current state of market volatility and overall uncertainty, will generate numerous M&A opportunities in 2020. M&A will be active through positions of strength, distress, and resilience that will shape the landscape.

  • Distressed companies will focus on operational efficiency and financial discipline. To generate liquidity, divestments of non-core and under-returning assets will continue. In the retail subsector, we expect department stores and restaurants will continue to examine their footprint and offload underperforming locations.
  • Innovation remains paramount, both in terms of the offering and the experience. Startups and direct-to-consumer brands will continue to thrive as traditional CPG brands struggle to keep up with demand and shifting tastes. Today, half of consumers are trying new brands, creating an attractive M&A opportunity for incumbent CPG players. 
  • As consumers increasingly shop online and buy goods in bulk, retailers and CPG players alike will need to invest in their supply chains and logistics to boost the profitability of e-commerce operations, and improve inventory availability. 
  • Investments in cold storage warehouses and distribution centers, particularly in urban areas, are necessary to meet the growing demand for grocery delivery.
  • To reduce supply chain risks and disruption, CM companies need to boost nearshore manufacturing and operations. Localized supply chains allow for increased control of production and improved speed to market.
  • Curbside pickup and last-mile capabilities are now essential for building a successful channel mix and elevating the consumer experience.
  • In life’s new normal, consumers will demand more “contactless” services to protect their health and safety. Emerging technology, particularly AI, drones, and robotics can help automate operations to minimize human contact, adapt the customer experience, and impact operational cost models.

About the data

The information presented in this report is an analysis of deals in the Consumer Markets industry where the target company, the target ultimate parent company, the acquiring company, or the acquiring ultimate parent company was located in the United States of America. Deal information was sourced from Refinitiv and includes deals for which targets have a target mid industry code that falls into one of the following mid industry groups: Agriculture & Livestock, Apparel Retailing, Automotive Retailing, Casinos & Gaming, Computers & Electronics Retailing, Discount and Department Store Retailing, Food and Beverage Retailing, Food and Beverage, Home Furnishings, Home Improvement Retailing, Hotels and Lodging, Household & Personal Products, Internet and Catalog Retailing, Other Consumer Products, Other Consumer Staples, Other Retailing, Recreation & Leisure, Textiles & Apparel, and Tobacco. Certain adjustments have been made to the information to exclude transactions which are not specific to the Consumer Markets sector or incorporate relevant transactions that were omitted from the indicated mid industry codes.

This analysis includes all individual mergers, acquisitions, and divestitures for disclosed or undisclosed values, leveraged buyouts, privatizations, minority stake purchases, and acquisitions of remaining interest announced between July 1, 2018 and June 30, 2020, with a deal status of completed, partially completed, pending, pending regulatory, unconditional (i.e. initial conditions set forth by the buyer have been met but deal has not been withdrawn and excludes all rumors and seeking buyers). Additionally, transactions that are spin-offs through distribution to existing shareholders are included. Percentages and values are rounded to the nearest whole number which may result in minor differences when summing totals.

Contact us

John 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, Analytic Insights, PwC US

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