Global M&A Trends in Consumer Markets: 2023 Mid-Year Update

Consumer markets’ M&A activity was muted in the first half of 2023, reaching its lowest levels since the beginning of the COVID-19 pandemic. We remain of the view that uncertainty about the macroeconomic outlook and the decline in real incomes from inflation is directly affecting consumer sentiment and spending and will lift only gradually during 2023. However, we remain cautiously optimistic that long-term trends and underlying factors will lead to more stable M&A activity in consumer markets during the second half of the year.

Consumer sentiment is showing some signs of recovering: PwC’s June 2023 Global Consumer Insights Pulse Survey found 50% of consumers plan to increase their online shopping activity in the next six months, while we see significant increases in expected total expenditure across all retail, as well as sectors such as luxury products, entertainment and leisure, and travel. As dealmakers consider their near-term investment strategies, they are closely monitoring economic and other data sources for positive cues that indicate increasing stability.

We expect valuations will continue to come down, although there remains a valuation gap between sellers and buyers that may be preventing some assets from reaching the market. Restructuring activity across consumer markets, particularly in retail and some parts of the leisure subsector, is expected to increase—hardly surprising given the lower growth, pressure on margins, and higher financing costs. With a growing number of companies facing liquidity issues or a refinancing event, this will likely lead not only to a higher level of restructuring activity but also to the potential for (pre-) distressed M&A, with opportunistic cash-rich corporates and private equity funds expected to be the likely buyers.

We believe the pressure for businesses to transform through transactions and accelerate the delivery of their strategic agendas remains as high as ever—or perhaps even higher. This is spurred by a desire, plus an increased sense of urgency, to innovate and leverage technology, including D2C and generative AI, to get more out of existing consumer spend, and to convert or find new customers. Improving D2C offerings and omnichannel models through technology has been a theme for some time among consumer products companies. Retailers are increasingly using technology to optimise and broaden customer experiences—at both the point-of-decision and the point-of-sale. Concerns over supply chain resilience have spurred some M&A focused on vertical integration, such as in transportation and logistics, where companies have sought access to technology to improve operations, particularly related to last-mile delivery and to gain greater control over the end-to-end supply chain.

We also expect consumer companies to further rebalance portfolios with greater focus on sustainability. Despite inflation reducing consumers’ disposable income and levels of discretionary spending, PwC’s June 2023 Global Consumer Insights Pulse Survey found that 80% of respondents said they were willing to pay more for sustainably produced goods. We see environmental, social and governance (ESG) gaining in importance as a screening criterion and during due diligence.

We expect CEOs will continue to focus on portfolio renewal and divesting of certain non-core assets and brands, especially given the elevated levels of shareholder activism seen today.

Another area where we see potential for M&A activity in the next six months is in public-to-private deals, especially in the retail sector, where lower public company valuations will create opportunities for dealmakers.