Global M&A Trends in Consumer Markets

Dealmaking in consumer markets is expected to improve in the second half of the year, after a challenging two plus years during which deal volumes and values trended well below historical norms. In the first half of 2024, deal volumes declined by a further 27% from an already low level in the same period the prior year due to the current macroeconomic environment. Deal values were also 5% lower than the prior period in 2023, with a handful of very large deals supporting overall values.

EV/EBITDA deal multiples in the business-to-consumer sector in Europe and North America increased from a low-point of 8.4 in 2023 to 8.8 in the first quarter of 2024, according to Pitchbook data. Together with an increase in larger deals, some recent IPO activity, and the first interest rate cuts from the European Central Bank as well as certain other countries, market conditions point to a recovery in investors’ confidence in the sector.

A key theme of the past few years continues; consumer companies will keep reviewing their portfolios, and we expect that the pressure to focus on core, faster-growing markets will drive carve outs and portfolio reconfigurations. Notable recent examples include Unilever’s planned separation of its ice cream business, Sanofi’s planned separation of its consumer healthcare business, and the establishment of a ten-year partnership between Tesco and Barclays to provide financial services offerings to consumers.

PwC’s Voice of the Consumer Survey 2024, published in May, found that 64% of respondents cited inflation among their top three concerns. The reduction in purchasing power is affecting consumer spending habits, which in turn is influencing the areas that are most attractive from a growth and investment perspective. As such, we expect the following subsectors to be M&A hot spots in the coming months:

In addition to portfolio optimisation, we expect the following themes will influence M&A activity during the remainder of 2024:

• IPOs and take-privates
  

Although PE exit volumes are slow, consumer markets—specifically the beauty sector—have seen some notable IPO activity. Spain’s Puig, Germany’s Douglas, and Switzerland’s Galderma all went public during the first half of 2024, signalling institutional investors’ appetite for such assets.

We can still see opportunities in some public markets for take-private transactions, such as the planned delisting of a beauty player in Asia.

• Consolidation and adjacent acquisitions
  

We expect that large consumer operators, especially in the retail sector, will use M&A to build efficiency and resilience in their operations and gain access to a larger share of consumer wallets. Some will address the challenges through consolidation, such as the merger of Brazil’s fashion retail chains Arezzo&Co and Grupo Soma, which will achieve greater scale by bringing together more than 2,000 company-owned and franchised stores and 34 brands. Others will look to diversify into new markets or adjacent categories. For example, in February 2024 Walmart agreed to acquire VIZIO Holding Corp., a manufacturer of audio and video equipment, for $2.5bn, to capitalise on Walmart’s access to consumers in a new revenue stream. And in June 2024, The Home Depot acquired SRS Distribution, a residential specialty trade distribution company, for $18.3bn, with a view to accelerate growth with professional customers.

• Distressed M&A
  

The difficulties confronting the retail sector are evident from the rise in retail insolvencies during 2023 and the first half of 2024. The recent restructuring of The Body Shop exemplifies how these challenges, including the growth of e-commerce and shifts in consumer preferences, are impacting retailers across the board—from the very large and well known brands to small and medium-sized businesses. We expect this trend in distressed M&A will continue, driving some level of consolidation in the sector as the more financially stable companies look to scoop up brands, intellectual property and selected assets.

M&A volumes and values in consumer markets decreased by 27% and 5%, respectively, between the first half of 2024 and the first half of 2023. Deal values were supported in part due to higher megadeal activity in the first half of 2024, including The Home Depot’s $18.3bn acquisition of SRS Distribution and International Paper’s $9.9bn proposed acquisition of DS Smith.

M&A activity by Middle Eastern, Indian and Japanese investors picked up in the first half of 2024 compared with the first half of 2023. We expect this trend to continue, reflecting a combination of growing domestic opportunities fuelled by the rise of the middle class (in the case of India and the Middle East) and companies with healthy balance sheets looking to deploy capital.

We believe that the pressure to transform through M&A to meet rapidly evolving consumer needs remains as high as ever. As a result, we expect dealmakers will focus on transformation and deal readiness in the near-term, with dealmaking activity gathering pace over the next 6 to 12 months once overall market conditions ease and trading performance improves.