CHICAGO — On June 16, Kearney released its annual Consumer and Retail M&A report, Forged in crisis, poised to innovate, which shines a light on the current and immediate future deal landscape for consumer product and retail companies. After a pandemic year of M&A deal activity hitting rock bottom, the report projects a return in deal value and density, with some significant changes caused by consumer shifts during the pandemic. Forged in crisis, authored by Kearney partners Bahige El-Rayes and Robert Haas, looks at how new market realities, digitization and a leaning toward direct-to-consumer business will affect the coming year's investment trends, and in particular what investors should be looking for.
"If past crises have taught us anything, it is that a dramatic new wave of change and innovation typically follows tumultuous times like 2020," noted Bahige El-Rayes, Kearney partner in the consumer practice, UK & Ireland practice lead and co-author of the report. "Consumer and retail executives are keenly aware that organic growth and innovation alone are often insufficient. The more active 2021 M&A and divestiture market will require leadership and bold imagination to pursue alternative strategies, with an eye toward creating both immediate and longer-term growth opportunities and shifting toward more localized operating models."
As much forward-looking as retrospective, the report acts as a benchmarking tool for the deal-making ecosystem. It examines deal drivers, shifts in deal size, valuations and volumes, and — in this year's different climate — whether the anticipated acquirers are frequent or infrequent buyers and whether deals will be made traditionally or through alternative means. The study also takes a close look at the kinds of acquisitions investors are looking for, and what their needs will be in the near and longer-term.
Examining executive sentiment around the business of mergers and acquisitions in this new, digital, DTC landscape, Kearney found that 80% of executives believe deal activity will continue going up after the lows of pandemic 2020. Divestiture is also a key theme: of the top 20 Consumer companies, up to three-quarters of them are likely to undergo a major divestiture in their portfolio, the study finds. M&A alternatives are also expected to have a strong presence, with 95% of executives believing they won't be declining anytime soon.
The responses of executives surveyed for the report reflect other changes in post-pandemic M&A, including an emphasis on the consumer — with digitization and direct-to-consumer making strong imprints on many deals. "Consumer proximity is recognized to be fundamental to all major brands — and that means that the pendulum of operating models will continue to shift toward more local with increased agility to make faster, more efficient choices," noted Robert Haas, Kearney's Private Equity and M&A global practice lead and co-author of the report. "This is one reason we expect to see a major shift in M&A strategies in the next 12 months."
The new Kearney research predicts that leaders in this dynamic market will be both buyers and sellers as they prune their portfolios, invest in both growth and optionality, and leverage new deal and integration structures during these times of sea change.
Click here to view the full report.
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Kearney surveyed 125 consumer executives and 10 private equity executives between January and March 2020. The study also includes data taken from Dealogic in April 2020.