Retail M&A Declines in Q1 2016
The U.S. retail and consumer sector experienced a decline in mergers and acquisitions during the first quarter of 2016, with deal volume and value decreasing during the quarter compared to quarter-four 2015 and quarter-one 2015, according to the first-quarter 2016 U.S. Retail and Consumer Deals insights report from PwC. In total, 231 retail and consumer deals (including 169 deals with undisclosed values) were announced during quarter-one 2016, totaling $23.7 billion in value. Food and beverage (including alcohol) deals led the market in terms of volume. The decline from quarter-one 2015 was mostly driven by the Kraft-Heinz merger for $53.1 billion in the first quarter of 2015, the largest deal in the sector’s history.
But regardless of the slow quarter, retail and consumer deal activity has been strong. According to the report, total transaction value for 2015 surpassed the $100 billion mark for the third year in a row, reaching $236.6 billion and setting a new five-year high, anchored by strong mega-deal activity—transactions that exceed $1 billion. The retail and consumer sector comprised approximately 12 percent of total U.S. deal volume in 2015, with deals in the food and beverage subsector continuing to drive activity in the retail and consumer sector.
“Despite a slow start to the year, the retail and consumer deals market is favorable,” said Leanne Sardiga, PwC’s U.S. retail and consumer deals leader, “although companies will likely continue to be challenged by global economic uncertainty and the valuation gap between buyers and sellers.”
Specifically in the consumer packaged goods market, retailers are being impacted by several themes, including continued pressure from shareholder activists and monetization of their real estate assets, Sardiga tells Retail Leader.
“Shareholder activists will continue to put pressure on CPG companies to more assertively articulate and execute on a focused strategy and efficient operations,” she explains. “These activists can be a source of different perspectives on their businesses and opportunities to enhance shareholder value.”
Sardiga also notes that companies are increasingly looking to monetize real estate holdings through non-recourse financing, sale leasebacks and, more recently, spinoffs of real estate and REIT conversions. Companies will need to continually reassess the best possible value of their locations and facilities.
“Companies should ensure they carefully assess their existing businesses in line with growth opportunities and prudent capital management,” she states. “Some of this growth and capital will need to come through acquisitions, alliances and exiting less-strategic divisions and product lines.”