It’s nearly impossible to talk about M&A trends in the Consumer Goods and Retail (CG&R) sector without mentioning Amazon's acquisition of Whole Foods. At USD 13.7 billion, it was far from the largest transaction in 2017, but significant because of its implications for the future of retail. The acquisition gives the tech giant a large physical presence in the grocery sector, through which it can use its expertise to re-cast how consumers shop for core lifestyle products such as food and drink, while at the same time exploiting increasing consumer demand for natural and organic produce.
"The way we shop has probably changed more in the last five years than in the last 50,” says Alyssa Gallot-Auberger, global chair of CG&R. "The new consumer often uses a physical shop as a place to have an experience rather than a place to buy things.”
The new consumer is connected, global, and mindful about the origin and sustainability of the products and services they buy. They primarily shop online, and their buying decisions are influenced by what their friends and celebrities like on social media. As more of these new consumers go online to purchase everything from clothes and electronics to household supplies and organic vegetables, transactions in the consumer sector are likely to continue rising. Digitization and consolidation within the industry drove M&A activity in 2017, pushing transaction values to a total of USD 543.2 billion.
As these trends accelerate amid a stronger global economy, we forecast consumer transactions to rise further to USD 632.6 billion in 2018 — making CG&R the top sector poised for M&A growth this year, followed by financials and industrials.
Consumer M&A in 2018: Key drivers
In 2018, we forecast M&A activity in the consumer sector to rise across all regions. North America will lead the pack, with transactions totaling USD 304.4 billion, followed by Europe with USD 178.6 billion, Asia Pacific with USD 125.9 billion, Latin America with USD 17.3 billion, and Africa and the Middle East with USD 6.4 billion.
Consumer IPOs in 2018: Key drivers
Consumer activity is expected to drive the IPO rebound in 2018. Second only to the finance sector, it is set to accelerate by almost 60% on 2017. With household spending remaining strong globally, consumer companies should also benefit from positive market conditions.
Following a peak in deal activity in 2018, we forecast that M&A and IPO transactions in the consumer sector will drop by 13% and 8% respectively in 2019 in line with a larger, worldwide trend of cooling deal activity in developed markets.
We forecast M&A values in the sector to drop to USD 551.3 billion in 2019 and USD 435 billion in 2020. After reaching a high in 2018, we forecast IPOs will decline slightly to USD 55.1 billion in 2019, before falling further to USD 33.9 billion in 2020.
Looking forward, analysts predict the sector will continue to undergo increased consolidation and greater integration of traditional and digital retail to improve the online shopping experience for the new consumer. Innovation, especially across premium product lines, will remain a key theme through 2020 and beyond, particularly in the food and drink subsector.