LONDON, 28-11-2014 — /EuropaWire/ — The number of consumer products (CP) companies focused on growth increased to 52% (up from 38% six months ago) according to EY’s 11th bi-annual Global Capital Confidence Barometer, a survey of more than 1,600 senior executives in more than 60 countries, of which 298 were from CP companies. With a brighter economic outlook and confidence in short-term stability, companies are significantly more optimistic, marked by a fall in those struggling for survival to just 1% from 7% six months ago.
- Consumer products companies focusing on growth increased to 52% (up 14%)
- Sharp rise in the number of consumer products companies expected to pursue acquisitions over the next year (up 11%)
- Deal value outstrips 2013’s total by 75%
The desire for M&A has rebounded after a dip earlier in 2014. CP companies expecting to pursue acquisitions over the next year saw a steep rise of 11% in recent months, and 64% of CP respondents predict an improvement in the global M&A market generally. This is notably high compared to other sectors.
With renewed optimism, CP companies are increasingly eager to boost their workforce (50% of respondents). They also indicate a greater willingness to take on debt to finance M&A, with a 10% increase compared to six months prior.
The CP sector has already witnessed more megadeals in 2014 compared to the whole of 2013. However, companies indicate that they are more likely to undertake strategic, small-size deals of less than US$500m over the next year (52%). Only 5% expect to report a deal size greater than US$500m.
M&A pipeline reflects cautious growth
The M&A pipeline is the clearest indicator of future activity.
While other sectors witness a shift toward a larger pipeline, CP companies are being more calculated by evaluating select deals. Twenty-eight percent of CP companies with deals in the pipeline have more than three in the offing (28%), which falls short of the average in other sectors (31%).
This vigilance is reflected by CP companies’ focus on cost reduction and operational efficiency as a key priority (more than one-third of respondents). However, expanding pipelines point toward an uptick in potential M&A momentum in the mid-term (28% to 66%).
Focus remains in developed countries, but favorable outlook in emerging markets
CP companies are more likely to increase M&A investments in mature markets than those in other sectors, with 8 of the 10 largest acquisitions in 2Q involving a target company in the developed world. Notably, the UK and US are cited as top destinations for investment.
Underdeveloped infrastructure is perceived as the biggest barrier to CP investment in emerging markets (33%). Conversely, the risk of slower growth in emerging markets has fallen by more than half over the last six months, dropping from 26% to 12%. China, India and Brazil remain the top three emerging markets slated to garner significant capital allocation.
Gregory J. Stemler, EY’s Global Consumer Products Transaction Advisory Services Leader, says:
“With a more favorable economic environment, M&A opportunities are firmly back on the radar for CP companies. While companies are treading carefully, focusing on strategic acquisitions and operational efficiency, there is promise of greater deal activity in all markets and clear signs that M&A pipelines are set to increase.”
Surge in deal value matches rising confidence according to EY’s Consumer Products Deals Quarterly
Renewed appetite for growth is evidenced by EY’s latest Consumer Products Deals Quarterly (CPDQ), which reflects a steep rise in deal value through 3Q (US$53b) – just short of 2Q deal value, which amassed the highest quarterly total since 2008 (US$57b).
CPDQ, which is based on EY’s analysis of Thomson Reuters acquisitions data from 4Q11 to 3Q14, reports that deal value has already outpaced 2013’s total output by 75%. With twice the number of megadeals announced comparative to those completed in 2013, the sector is entering a transformative phase.
Other key CPDQ findings include:
- Sharp downturn in household and personal care transactions from 31 (2Q) to just 17 (3Q)
- Portfolio optimization underpinned the largest deals in 3Q
Amidst new insights within the food subsector, the report further dispels the long-held perception that offering consumers more choice increases spending, and highlights failure to deploy a regular and robust review process in a shortlist of the top three mistakes that companies make with their portfolios.
Stemler says: “Market activity is finally catching up with the perception of better things to come as deal value boldly outpaces last year’s output. The real challenge will be maintaining that growth. As long as the biggest players continue to display a strong appetite for megadeals, and companies can master their portfolio optimization, this trend should hold.”
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About the EY Global Capital Confidence Barometer
The EY Capital Confidence Barometer is a survey of 1,600 senior executives from large companies around the world and across industry sectors. The objective of the Barometer is to gauge corporate confidence in the economic outlook, to understand boardroom priorities in the next 12 months and to identify the emerging capital practices that will distinguish those companies that will build competitive advantage as the global economy continues to evolve. This is the 11th bi-annual Barometer in the series, which began in November 2009.
About the EY Consumer Products Deals Quarterly
Consumer Products Deals Quarterly is based on EY’s analysis of Thomson Reuters data from 4Q11 to 3Q14. Data was pulled from the Thomson Reuters database using standard industrial classification codes together with EY’s identified deals.
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