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Mergers & Acquisitions

M&A Increasingly Drives Innovation: Study

Retailers and manufacturers pressured to maintain relevance

CHICAGO – The coming year may see increased merger-and-acquisition activity among both retailers and consumer packaged goods (CPG) manufacturers, with players in the convenience space potentially using M&A to drive not only growth but also innovation, according to a researcher.

For CPG companies, retail chains and businesses in general, 2017 offered more of the steady M&A activity that has characterized the market for the past several years, according to Chicago-based A.T. Kearney, authors of a new report on M&A activity.

During the past year, deal value dropped from 2016 highs, but “this will likely be short-lived,” Kearney said in its "2018 Consumer and Retail M&A Report: Can M&A Reignite Growth in Consumer and Retail?"

With the completion of several political elections around the world, and both private-equity firms and consumer products companies reporting “record amounts of cash reserves,” the report predicts a rise in global M&A deals, companies increasingly using M&A for growth and innovation, and more foreign-based deals for U.S. companies, due to rising interest rates.

Bahige El-Rayes, principal with A.T. Kearney and co-author of the study, told CSP Daily News that like every other retail channel facing disruptive pressures, convenience stores will have to evolve.

“If you are trying to win on convenience today, that means something different than what it meant before,” El-Rayes said. “If you’re a convenience player, you have to be the most relevant on every convenience angle: online, brick-and-mortar or as a hybrid. This whole drive is pushing retailers to think differently.”

Private-equity firms in particular, El-Rayes said, are looking for companies that have “brand equity with consumers and where they can launch a transformative program.”

As an example, he named Seattle-based Amazon buying Austin, Texas-based Whole Foods Market. These “adjacent” acquisitions were meant not for growth but to transform the companies, he said.

In interviews with high-level retail executives, three-quarters of respondents said they’re using M&A to help their companies acquire new capabilities, expand their product portfolios, access new customers or increase their geographic reach, the report said. As a result, the market is characterized by optimism from those at the top, the report said, with 71% of respondents saying M&A is creating value, which is up from 48% last year.

“While some key trends in the market will become even more entrenched—such as record-high cash reserves and the continued ease of global trade that M&A represents—others will shift,” said Bob Haas, partner with A.T. Kearney, leader of the firm’s global M&A practice and co-author of the report. “Much of the wait-and-see climate we saw in 2017 that has characterized M&A globally has dissipated. At the same time, with interest rates finally on the uptick, we will likely see an increase in U.S. companies making innovative acquisitions to stay relevant.”

A.T. Kearney analyzed more than 100,000 consumer and retail transactions from 2006 through the first quarter of 2018, spanning sectors such as food and beverage, grocery, pharmacy and personal care. The study also included insights from high-level executives of global consumer and retail companies based on a survey that sought their perspectives on trends in consumer and retail sectors and future M&A activity.

A.T. Kearney is a global management-consulting firm with offices in more than 40 countries.

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