Strategic portfolio optimisation will continue to be one of the most important deal drivers in the coming year in the consumer products sector, according to Big Four financial services firm EY.
The current low oil price, which has been such a boost to consumer and business confidence, will also support deal activity in 2015, the Consumer Products Deals Quarterly 2014 report said.
Activist shareholders and private equity will also continue to drive value in the sector, with a shift toward middle market pointing to a recovery in deal volume, as companies maintain a healthy appetite for megadeals.
“Dealmaking in the consumer products sector surged back to life in 2014, underpinned by the dominant theme of strategic portfolio optimization and improving economic conditions” added Gregory Stemler, EY’s global consumer products transaction advisory services leader.
“Companies must decide [in 2015] what combination of brands, categories or businesses should be grown, fixed, exited or sustained to drive shareholder value.”
Total deal value increased by almost 80% to $169bn in 2014 – up from $95bn in 2013 –supported by eight megadeals, which was twice the total of the previous year. Tobacco giant Reynolds’ $27.4bn takeover of Lorillard Inc was the biggest deal of the year in the sector, followed by the $14.2bn Bayer transaction for Merck Consumer Care Business and Suntory’s $13.9bn acquisition of Jim Beam.
“The environment facing global consumer products players will continue to be tough in 2015,” Stemler said. “Organic growth in developed markets remains challenging and realising meaningful growth in certain emerging markets remains volatile. Against this backdrop, companies simply cannot afford to have an inefficient business portfolio of products and brands. Therefore, strategic portfolio optimisation will continue to be one of the most important deal drivers in the coming year.”
He added: “The improving economic conditions in 2015 for US-based companies will result in strong balance sheets that will continue to support more capital markets transaction activity in the sector.
“Additionally, this environment may also continue to attract activist shareholders and private equity funds to further target the sector to create value. Many companies in the sector have been targeted by these groups and we do not expect that to change in the year ahead.”
In total, there were 314 deals in the consumer products sector in the fourth quarter of 2014, compared with 294 in the third quarter, with 49 involving private equity.