Global M&A Trends in Consumer Markets

Corporates in the grocery retail sector are expected to continue to consolidate in 2024, in response to persistently challenging market conditions. While inflation appears to be cooling in some markets, prices remain high, and consumers will look for ways to save money, putting pressure on margins. Over the past 12 to 18 months, we have seen grocery retailers in the United States and Europe taking further steps towards consolidation, as illustrated by the proposed merger between Albertsons and Kroger in the US; Aldi’s announced acquisition of approximately 400 Winn-Dixie and Harveys supermarket locations from Southeastern Grocers in the US; and Carrefour’s proposed acquisition of 60 hypermarkets and 115 supermarkets under the Cora and Match banners in France from Louis Delhaize group.      

In late 2023, French supermarket group Casino announced plans to sell several of its supermarkets and hypermarkets as it undergoes a debt restructuring. The proposed sale has attracted interest from both domestic rivals and other regional European players. We expect further consolidation within the grocery retail sector to take place in 2024 among companies with complementary footprints and the potential to generate synergies from greater scale.

Key players in the sector are also focusing on value creation initiatives such as the development of capabilities that will help them leverage their access to consumers. For example, Walmart has invested in advertising businesses, third-party marketplaces (including an additional US$3.5bn of investment in 2023 in Flipkart, an Indian e-commerce company) and logistics capabilities. The Schwarz Group, owner of Lidl, invested in Aleph Alpha, an AI company, to improve the customer experience and simplify the work of employees.

We expect these trends of consolidating and acquiring consumer-focused capabilities will extend into 2024, combined with further portfolio reviews, which may lead to selective disposals.

Strategic portfolio reviews will continue to drive M&A activity among food and beverage companies. For 2024 specifically, we believe operators will face greater pressure to manage prices, as input costs have eased from their recent inflationary highs. This is likely to benefit those companies with the strongest financial and business position and therefore widen the gap between winners and losers, opening up opportunities for transactions.

In addition, food and beverage companies are constantly evaluating their business portfolios, in an effort to manage complexity (i.e., range of brands) and focus financial as well as managerial resources on areas of competitive advantage. We expect this to create opportunities for consolidation, brand acquisitions and selective disposals, as illustrated by J.M. Smucker’s announced acquisition of Hostess Brands, Unilever’s acquisition of Yasso Holdings and Nestlé reducing its stake in its European frozen pizza business by entering into a joint venture with PE firm PAI Partners. 

Food and beverage remains an attractive sector to investors, especially at the most innovative end. According to PitchBook data, over the past 10 years European venture capital (VC) investing in consumer markets has favoured the food and beverage sector. Volume share of VC investment in the food and beverage sector increased from 16% of consumer markets in 2013 to 30% in 2023, and value share increased from 9% to 30% over the same period. Fueling this investment by VCs is a growing interest in the development of new technologies and services in the subsector. VC investors are also heavily focused on innovative ingredients that offer great taste, have less impact on the environment and are at competitive price points in comparison to traditional animal-derived products.

Although financing remains challenging for dealmaking, we expect PE to remain interested in the food subsector as firms look for opportunities to pick up divested brands or expand into new markets. Illustrating this trend is the announced plan of a consortium led by US PE firm Paine Schwartz Partners to take Costa, an Australian fresh produce company, private.

Global megatrends such as climate change, technological disruption, demographic shifts, geopolitics and societal factors are influencing investment themes in the food and beverage sector, particularly in response to concerns over sustainability, resilience and access to resources. We believe this will lead to an increase in transactions as businesses look for opportunities to accelerate their transformation journey.

Technology will continue to be a key driver of investment as companies seek to both gain and leverage access to consumers and the digital channel, as illustrated by PepsiCo’s investment in Instacart.

Regulators and consumers keep increasing the pressure on packaging players to provide solutions for plastic removal and recyclability, creating a greater need for R&D and capital expenditure. This pressure is also affecting the attractiveness and valuations of companies with no clear pathway to sustainability-friendly solutions.

As a consequence, we expect M&A activity to pick up pace in 2024, driven by selective disposals, consolidation and public-to-private deals. Recent transactions illustrate the need to gain scale in order to deliver the required investments, including Smurfit Kappa’s merger with WestRock and One Rock Capital Partners’ acquisition of Constantia Flexibles, a plastic-packaging business whose product portfolio largely focuses on recycling and recyclable alternatives.

To catch up or stay ahead, bigger players are also looking at smaller players with intellectual property or know-how on sustainable packaging that can be rolled out across their product and customer portfolios. These capabilities will help companies to address the growing challenges of the circular economy and to proactively transform to meet their climate change goals. As a result, these innovative businesses tend to command higher multiples. 

With consumer discretionary spending likely to remain challenged and elevated levels of distress likely to persist, the fashion market in 2024 will be increasingly polarised between winners and losers. We expect successful companies to leverage their balance sheets and operating platforms to pick up valuable brands.

Luxury global powerhouses such as LVMH and Kering are expected to continue to apply their ‘house of brands’ strategies, illustrated by Kering’s investment in Valentino. Platform plays are also expected to occur. For example, Next, a UK retailer with an online presence in more than 70 countries, has been picking up stakes in or acquiring smaller retailers in recent years as it expands its “Total Platform” business.

We expect more fashion transactions to take place in 2024, driven by portfolio reviews among brand owners and strategic moves to transform business models to address persistent challenges in the retail sector. Brick-and-mortar operators continue to adapt their high-street presence to e-commerce channel growth.

Pet spending is expected to enjoy greater resilience compared to other consumer spending categories, due to the rise of premiumisation and the anticipated increase in pet ownership, particularly in emerging markets. Furthermore, the growth in consumer services is expected to positively impact the pet services sector.

We expect corporate operators as well as PE players to continue to look for M&A opportunities to broaden their product offerings and expand their capabilities or geographic footprints. High-quality small to midsize assets are expected to attract interest from a broad range of investors, as illustrated by General Atlantic and L Catterton’s investment in Butternut Box, a UK-based subscription business focused on fresh dog food. Bolt-on acquisition and platform plays, such as Cinven’s investment in Arcaplanet, a pet care chain in Italy that is pursuing a strategy to build a leading pet care platform, will continue to be popular in the PE sector.

The growth of consumer health as a significant sector in its own right is expected to continue. Following in the footsteps of Johnson & Johnson, GSK and Pfizer, which spun out their consumer health businesses in the past few years, Sanofi announced its intention to separate its consumer health business in October 2023, and in November 2023, Bayer announced the potential separation of its consumer health business as one option under consideration as the company takes a close look at its strategy and operating model. Newly spun-off consumer health companies and existing pharmaceutical companies with consumer healthcare brands will likely continue to use M&A to accelerate growth and achieve their own strategic goals. Examples include Viatris divesting nearly all of its over-the-counter (OTC) business to PE-owned Cooper Consumer Health and Haleon’s disposal of its Lamisil brand to Karo Healthcare AB.

Demand for consumer health products is growing due to demographic changes such as an ageing global population and income levels and behavioural factors, such as increased cautiousness about health, and a greater focus on prevention. Cost-of-living factors are influencing consumer spending preferences, with more consumers considering purchasing OTC medicine, vitamins, supplements and minerals as an alternative to more expensive—or less available—professional healthcare and prescription medicines. As the online channel for the provision of healthcare services becomes more attractive, we are seeing a growing trend of deals within the online pharmacy space. An example of such a deal is Medbase, a healthcare subsidiary of Swiss grocery retailer Migros, acquiring the Swiss business of the Zur Rose Group, a European online pharmacy, to build out its primary care capabilities. 

The flow of hospitality and leisure businesses coming to market in 2024 will increase, fuelled by a combination of factors including the expected return of tourism to broadly pre-pandemic levels, the trend of consumers preferring experiences to goods and a tendency of consumers to protect their spending in this category to some extent.

We expect to see investment into Europe from the United States, the Middle East, Africa, and Asia Pacific, reflecting the size of the market and consumer interest in Europe as a preferred travel destination. Long-tenured assets in PE portfolios will likely start to flow into the market through partial or complete disposals, whilst public-to-private deals, such as Apollo’s announced acquisition of The Restaurant Group, illustrate the opportunities arising from lower valuations and positive growth prospects in the eating and dining sector as operators attempt to recover from a low base during the height of the pandemic.

Sports remains a bright spot for M&A in 2024, and we expect the sector will follow a similar trend to 2023, which saw a number of high-profile sports-related assets transact. The sector remains attractive to investors due to resilient sports viewership and the value associated with the rights to broadcast and stream live sports. The relative scarcity of sports franchises and teams can drive up valuations where interest is high, and bidding can be fierce as a result.

The Middle East is expected to play an important role in the transportation and logistics sector in 2024—both as an investor and as a destination for growth investment. A notable transaction announced in the second half of 2023 was the acquisition by Abu Dhabi-based AD Ports Group of Spanish-headquartered integrated logistics services provider Noatum. 

Beyond the Middle East, the global transportation and logistics sector is expected to focus on consolidation to expand geographic reach and on honing existing portfolios, with a continued interest in technologies and services dedicated to logistics. This trend is illustrated by Japanese global logistics services company Nippon Express’s announced acquisition of Cargo-Partner, an Austrian provider of freight forwarding services.