Retail, food and beverage, and consumer goods businesses could see increased consolidation this year, as more than 6 out of 10 merger and acquisitions (M&A) professionals in the consumer markets sector expect their companies or clients to initiate an acquisition in 2014, according to KPMG’s 2014 M&A Outlook Survey Report. In addition 36 percent expect their companies or clients to initiate a divestiture this year.
“The combination of favorable credit terms, high cash balances, low interest rates and a stabilizing U.S. economy have companies considering M&A as a key growth strategy in 2014,” said Rob Coble, partner in KPMG’s Transactions & Restructuring practice. “With improved market fundamentals, organizations are seeking to deploy cash on acquisitions that will allow them to maintain profitability, increase market share, and increase value to shareholders.”
Of the 117 M&A professionals surveyed by KPMG, 62 percent identified consolidation of core businesses/competition as the top trend that will drive acquisitions in the consumer markets sector, followed by product/service growth (40 percent), geographic growth (31 percent), and customer growth (30 percent) respectively.
“While there is clearly an appetite for initiating deals, there remains a desire to grow in the most efficient way possible,” said Coble.
“Through consolidating core businesses, deal makers see a decrease in costs and as a result, an increase in profits. With those increased profits they can focus on how to expand products, reach new customers, and expand their geographic footprint.”
United States Most Active Market
The United States is expected to experience the highest level of M&A activity in 2014, cited by 51 percent of survey participants. China (29 percent) and the rest of North America (27 percent) will also be active M&A markets, according to the survey.
“In today’s evolving and volatile investment environment, the United States, and North America more broadly, continue to be seen as the most secure markets to invest in,” said Coble. “Although economic conditions in Europe are stabilizing, the combination of relative stability and growth rates in the U.S. continues to attract investment dollars.”
Biggest Challenges to Deal Making
The biggest challenges to deal making in this sector are the valuation disparities between buyers and sellers (53 percent), the inability to forecast future performance (40 percent), difficulties in identifying suitable targets (32 percent), and buyer/target alignment on post-deal strategy (20 percent).
“Valuations and economic conditions go hand and hand,” said Coble. “Despite improvements in economic fundamentals, the market continues to evolve and change rapidly. As a result, buyers are cautious and depend on an enhanced due diligence approach to ensure the assets they are purchasing are what they want and accurately priced.”
About the 2014 M&A Outlook Survey
In collaboration with the Research practice unit of SourceMedia, the publisher of Mergers & Acquisitions, KPMG LLP surveyed 1,001 M&A professionals in September 2013, including 117 consumer markets executives. The population was comprised of investors (70 percent) and advisors (30 percent) from the following industries: technology/media/telecommunications, 15 percent; healthcare/pharmaceuticals/life sciences, 11 percent; energy, 10 percent; financial services, 16 percent; diversified industrials, 18 percent; consumer markets, 12 percent.
A replay of a webcast held on January 16, 2014, where the data was discussed in depth by KPMG leadership, is available on the Advisory Institute page.
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.