Mergers & acquisitions—from corporate deals to private equity (PE) investments to business spinoffs—are common activities in any industry. And for the retail and consumer sector, increased cross border activity, expansion into e-commerce and PE transactions in 2012 strengthened such U.S. retail and consumer M&A activity, according to new findings from PwC’s annual report.
Its “US Retail and Consumer M&A Insights: 2012 year in review and 2013 outlook” report confirmed strong retail and consumer deal activity in 2012, which drove both deal volume and value up from the prior year as the number of larger deals over $1 billion almost doubled. Private equity activity in the retail sector comprised nearly 40 percent of deal volume and 55 percent of deal value; and IPO volume increased 38 percent.
“While the prolonged negotiations on the fiscal cliff dampened the positive momentum heading into 2013, consumer sentiment improved significantly, and we expect retail and consumer companies to continue to use acquisitions to drive growth and adapt to the latest consumer trends,” said Leanne Sardiga, Partner and US Retail & Consumer Leader, Deals Practice, for PwC. “We expect several factors to impact the R&C deal landscape in 2013, including continued cross border activity, additional investment by PE investors in retail and companies continuing to expand omni-channel capabilities.”
There were a total of 130 deals in the retail and consumer sector with values greater than $50 million in all of 2012, representing $91.2 billion, a 20 percent increase in volume and doubling the value seen in 2011, according to PwC. During the fourth quarter of 2012, deal volume and value increased 21 percent and 100 percent, respectively, to 41 deals at a total value of $26.2 billion, from the fourth quarter of 2011, which PwC attributes to sellers pushing to close deals before year end.
Deal activity in the consumer space continues to be partially driven by large CPG companies selling non-core operations and brands. PwC expects the trend to continue during 2013 as CPG companies look to sell underperforming assets and reinvest in higher margin and growth products and markets.
Cross-border deal activity remained consistent with prior year levels, representing 40 percent of deal volume and 50 percent of deal value in 2012. Asia was a leading area for U.S. investment abroad as U.S. companies continue to seek out opportunities to take advantage of the expected growth in consumer spending across the Asian economies. Internationally, PwC anticipates R&C companies to continue to invest in emerging markets, with China and Brazil being a focal point as their middle class continues to expand and their consumer economy grows.
Divestitures (excluding spin-offs) during 2012 represented 30 percent of R&C deal volume compared to 32 percent in 2011. For deals with values greater than $50 million, divestiture deal volume was relatively flat compared to 2011, while deal value was up $18 billion, largely driven by one major deal during the year. In addition to divestitures, the R&C sector has seen continued activity in corporate spin-offs as companies reassess their portfolios and positioning in an increasingly competitive environment. Corporate spin-offs in 2012 generally focused on realigning businesses to distribution channels or high versus low-growth product segments. As these companies begin to operate separately, PwC expects that there will be increased M&A activity to drive growth in the re-focused business segments. Moreover, PwC expects consumer-branded companies to continue to evaluate their portfolios and divest or spin-off products.
Positive deal trends across sub-sectors