Global fmcg companies have switched their attentions from mega acquisitions to smaller deals that strengthen core activities, exclusive research for The Grocer reveals.
Last year's merger and acquisition activity was characterised by a new level of caution, according to The OC&C Global Giants Index, which ranks the world's top 50 fmcg companies.
Almost half the top 20 deals were less than $200m each. The total figure was distorted by two acquisitions that dwarfed the rest: Japan Tobacco's purchase of Gallaher and Johnson & Johnson's of Pfizer Consumer Healthcare, which accounted for 75% of total acquisitions by value.
"The value of the 41 deals involving the 50 global giants worth more than $15m reached $47.9bn in 2006, and the two stand-out deals were worth $35.7bn on their own," said Nicholas Farhi, associate director in OC&C's consumer practice. "The big companies are concentrating on core activities, with 95% of the investments in terms of value about strengthening existing positions."
Nestlé returned to the top of the index, with Procter & Gamble second and Altria Group falling to third. "All three companies are on about $70bn of grocery sales and we are likely to see regular re-orderings until the next mega acquisition," said Farhi.
Profit margins of the top 50 global fmcg companies reached 17%, up 0.5 percentage points, with tobacco and pharmaceuticals achieving the best margins. Sales grew 5.6% on average, with organic sales growth accounting for nearly 50% of total growth. "This year, companies are starting to pursue organic growth by different means: still focusing on NPD, but with a real upturn in the emphasis on marketing and channel diversification," said Farhi.
Fmcg companies are also looking to expand their presence in emerging markets, particularly China. "The pressures of rising input costs and a consolidating customer base continued, and the output was robust but not outstanding," he said. "The global giants are looking for new markets to alleviate some of this pressure, and China is the biggest target."
OC&C Global Giants Index p26
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