Expect M&A activity in consumer markets to remain strong in 2022 as companies transform in line with changing consumer preferences

With more and more people vaccinated and consumer spending on many types of products and services picking up again, dealmaking in the consumer markets looks set to flourish in 2022. The  most significant catalyst of mergers and acquisitions will be changes in consumer preferences, as the way people spend their money is influenced by lifestyle changes prompted by new ways of living and working. This M&A activity will be driven by both corporate portfolio reviews and lively interest from private equity (PE) houses. 

Consumer confidence is likely to return as COVID-related measures are eased. Added to this will be the effects of pent-up demand. However, for a number of reasons it’s a good idea to take a nuanced approach to the consumer industry. On the one hand, coronavirus-related restrictions will continue to hit demand in subsectors such as hospitality and leisure. And on the other there are risks, including potential problems created by new virus variants, slower GDP growth in China and Europe, rising prices due to inflation pressures, and ongoing supply chain disruptions causing operational challenges for some companies.

Main themes driving M&A:

Divestitures and demergers 

Recently a number of divestitures by large corporates across the consumer markets sector have been announced, including Adidas’s sale of Reebok, Unilever’s sale of its global tea business, and PepsiCo's sale of Tropicana. Given that this is part of a broader trend in portfolio reviews, in the coming months we’re likely to be seeing more such activity, which is likely to attract strong interest from PE buyers. 

Further corporate demergers are also on the cards in 2022. There are two main reasons for this: shareholders are expecting companies to unlock greater value, and CEOs are increasingly believing that reacting rapidly to changes in consumer behaviour and business model disruption may trump the benefits of scale.

Spotlight on supply chain and logistics 

With supply chain disruptions continuing to impact the sourcing of raw materials and delivery of goods to customers, some of the world’s biggest retailers have started acquiring their own containers or chartering ships for high-priority items. Other companies are making strategic capabilities-driven acquisitions in supply chain and logistics.

As consumer, retail and logistics companies seek to find creative solutions to reduce obstacles, become more resilient and squeeze more value from the supply chain, we’re likely to see an increasing number of mergers and acquisitions. Areas of focus will include vertical integration (partly in response to increasing environmental, social and governance pressures), the acquisition of tech companies specialising in analytics- and data-driven supply chain processes, and logistics companies seeking to enhance their delivery and fulfilment capabilities. Added to this will be intense competition for the last mile, leading to growing interest in companies with speciality logistics capabilities.

Online platforms and e-commerce

Online platforms and e-commerce companies are also out shopping, using M&A to acquire capabilities, expand into related categories and gain market share. Areas to watch will include the fashion rental and resale subsector, increasingly an object of interest for well-known fashion brands. 

We will also see the growing impact of conscious consumerism as people’s purchasing decisions are informed by the desire to have a positive social, economic and environmental impact. This is prompting companies to reshape their business models and investors to rebalance their portfolios in favour of more sustainability-focused businesses

As the chart shows, deal volumes and values increased between 2020 and 2021 in all sectors of consumer markets and across all three regions. A notable feature is the increase in the share of M&A funded by private equity, up considerably in 2021 compared with the previous five years.

Consumer markets deal volumes and values, 2019-2021

What about M&A in the Swiss retail and consumer sector?

In parallel to international trends, Swiss consumer companies are also increasingly engaging in divestment processes to streamline and re-focus their businesses. Furthermore, online shopping and distribution channels as well as the digitalisation of consumer business models, remain in focus. Consequently, online retailing volumes remain at record levels and non-food retailers continue to reduce their store networks while applying heavy discounting to reduce inventory levels and incentivise consumers to return to the stores. 

Other factors impacting the consumer industry are supply shortages and inflationary raw material and transportation prices, particularly in certain non-food durables like furniture, leisure, home and consumer electronics equipment, as well as do-it-yourself products. In addition, ESG topics are of increasing relevance, and in line with this we’re also seeing a continued focus on plant-based meat and dairy products as well as vitamins, minerals and supplements. In this context, the alternative protein space has become more attractive as valuation multiples have recently contracted due to disappointing quarterly results of listed alternative meat and dairy companies, e.g. Oatly and Beyond Meat. Despite disappointing quarterly company results, we expect continued high growth in these sectors. We learned from market research that consumers’ sensitivity for ecological trends prevail combined with ethical aspects in animal welfare. We expect further investments of large consumer food companies in the alternative space. 

With the exception of high-frequency locations, food retailing continues to do well, while the restaurant and food service industry is only recovering partially and slowly owing to the persistence of home office set-ups.

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