M&A trends in consumer markets: 2023 outlook

Put portfolio optimization on your CEOs agenda and create value through M&A

Michael Huber, Director, Corporate Finance/M&A, PwC Switzerland

Alain Oberhuber
Director, Advisory, PwC Switzerland

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Martin Frey
Managing Director, Consumer Markets, PwC Switzerland

Consumer sentiment has fallen below global financial crisis level in most markets and valuations in consumer markets are beginning to recalibrate. Consumer market operators should continue to review their portfolios in 2023 and focus on transforming their businesses with M&A to achieve their strategic objectives faster and increase shareholder value. For a more detailed look at PwC’s most recent insights into consumer market mergers and acquisitions, plus an outline of developments and prospects in Switzerland, read on.

We expect uncertainty to decline only gradually in 2023, but despite various headwinds – including low consumer sentiment, high inflation, and rising financing costs – we are cautiously optimistic that M&A activity will stabilise compared to 2022. Investors will continue to optimize their portfolios (in the areas of consumer health and direct-to-consumer) by adapting them to consumer trends which accelerated over the COVID period.
Thanks to a reset of public companies’ valuations, lessened competition for deals, and new assets coming to market – also from distressed situations – dealmakers are presented with attractive opportunities. Crisis resilience and adaptation to new ways of working and living will drive deal activity, as will the increasingly important strategic search for growth and margin. We also expect opportunistic transactions led by cash-rich corporates and private equity (PE) with available cash and funding options.

From health to pets to logistics: global M&A trends in the consumer markets

The sub-sectors likely to be hotspots of M&A activity in the next 6 to 12 months will typically be those which are resilient in a downturn or support capability-driven mergers and acquisitions.

"We conclude that the current environment offers a broad range of dealmaking opportunities for Swiss consumer goods corporates due to cash and refinancing needs as well as more reasonable valuation multiples. We predict healthy M&A activity in 2023, following a volume decline in the second half of 2022."

Alain Oberhuber,Director Advisory, PwC Switzerland

Grocery retail

Prospects for 2023 dealmaking activity in the grocery retail sector remain strong, with several transactions already in the pipeline. This follows the relatively high level of activity in 2022, as companies look for strategic opportunities to scale operations, secure access to key products, and optimize portfolios. Another trend we expect to continue is grocery players investing in food producers to secure access to supply. Recent examples of such deals include Kroger’s proposed merger with Albertsons in the US or Aldi’s acquisition of two mineral water plants.

Consumer goods

Major fast-moving consumer goods (FMCG) players will continue to reshape their portfolios, contributing to the M&A deal flow. Kellogg’s, for instance, has announced plans to separate its snacks business from its cereal and plant-based businesses and split into three independent public companies. General Mills plans strategic acquisitions and divestitures to further enhance its growth profile. This restructuring of portfolios along category lines will likely pave the way for M&A activity and other creative types of arrangements in 2023 and beyond.

Consumer health

The consumer health sector is riding a strong wave and benefitting from a combination of positive long-term growth trends with an ageing population, more consumer focus on health, public health funding challenges, and accelerated digitalization. We expect an increase in M&A activity – such as corporate players separating their consumer health businesses – resulting in further acquisitions and divestitures during portfolio optimization. In addition, private equity firms (PEs) are investing in consumer health platforms, which will trigger further deal-making and transactions.

In Europe, we currently see an even stronger interest for consumer health businesses in VMS (Vitamins, Minerals, and Supplements), active and medical nutrition – a hot topic at Unilever’s CMD in December 2022 as well as at Nestlé’s event last November. Furthermore, we believe that OTC medicines and personal care products will also gain traction, with Haleon’s positive organic growth outlook for 2022/23 and Viatris’ recent announcement to sell its European business. The reason is that businesses continue to show high single-digit growth rates. For instance, from Haleon’s Q3-22 results last November we learned that the company was expecting an organic growth rate of 8 to 8.5% for 2022 and remained optimistic in its forecast for 2023 with an annual rate of 6 to 8%. Both the 2022 result and the optimistic 2023 outlook show that consumers continue to have a strong health consciousness and are therefore willing to spend more on dietary supplements and OTC medicines.

Pet care and pet food

Amid an increasing number of pet owners, consumers continue to pamper their pets. Against this backdrop, growth prospects for the sector remain strong, and both companies and PE players are looking for M&A opportunities to expand their product offerings or increase their capabilities or geographic footprint.
We presume that the large pet food companies (Mars, Nestlé, Colgate, General Mills, Spectrum brands) are interested in a) expanding into new regions, primarily in Southeast Asia; b) acquiring targets with new technologies; c) exploring new niche products (plant-based pet food, organic, snacks); or d) targeting companies with strong DTC channels.

Hospitality and leisure

Hospitality and leisure companies are among the faster growing sectors. However, they face a mix of headwinds including consumer trends, economic conditions, technology, and competition. We expect strong deal interest in resilient sectors in 2023: The gaming sector could see further geographic acquisitions by major operators; in the sports sector, the impact of COVID on the industry's finances has increased willingness to consider deals at both club and league level, with associated media rights deals. In hospitality and international travel, the difficult economic environment is likely to delay a stronger post-COVID M&A recovery.

Transportation and logistics

After some recent large deals in the sector, we expect a trend towards smaller carve-outs soon. M&A in transportation will remain strong, as the players use profits from the recent boom to develop end-to-end solutions on one hand and focus on different client segments on the other.

Consumer markets deal volumes and values, 2018-2022

Bar chart showing M&A volumes and values for the consumer markets sectors. Deal volumes and values declined in 2022 across all sectors and regions as macroeconomic and other headwinds increased.

Sources: Refinitiv, Dealogic and PwC analysis

Consumer market M&A 2023: pay attention to three focus areas

Accelerate strategic transformation
By reviewing and restructuring your portfolio and leveraging transformative M&A you might achieve your strategic objectives faster and increase shareholder value in 2023. Given the volatile macroeconomic backdrop, the year will likely remain challenging for M&A in consumer markets. However, this will open new opportunities to create value through M&A.

Manage your risks
In an environment of persistently subdued consumer sentiment and difficult financing for large deals, smaller deals and structured transactions can be the key to success while reducing your risks – in the US, by the way, which has seen a growing number of antitrust enforcement actions. We are already seeing PEs focus on smaller, complementary acquisitions to accelerate value creation in their existing portfolio companies, as well as an increase in structured deals or refinancings in partnership with corporates or other PEs.

Leverage opportunistic deals
Public valuations have come down from recent highs and a combination of margin pressures and financing challenges have created distressed assets. If you have deep pockets and dry powder to deploy, as these assets come to market, you can take advantage of rare opportunities to lay the grounds for outperforming your peers.

Our conclusion – M&A activity in the consumer industry set to remain stable

We conclude that the current environment offers a range of deal opportunities for corporates. We anticipate that interesting targets are most likely to come to market as sellers need to preserve cash and new entrants and companies in transition have financing and investment needs. We predict healthy dealmaking in 2023, with some acceleration in the first half of 2023, after a volume decline in the fourth quarter of 2022.  

And how about Switzerland?

Based on our discussions with corporates, we expect the business environment to remain challenging in 2023. The first US FMCG 2022 corporate results and outlooks underline our modest prediction. Obviously, the price decline of some of the key commodities will ease the pressure on gross profit margins. On the other hand, we expect demand for higher wages to increase costs in the first half of 2023 and possibly even further later in the year. Given the shortage of skilled talents, most consumer goods companies are willing to give in and raise wages. On top of continued higher production and SG&A costs, shrinking volumes will make it increasingly difficult for companies to further raise retail selling prices.

We expect a similar situation for Swiss consumer goods companies. To preserve cash and stabilise margins, we believe top management is much more willing to abandon underperforming activities, which are “nice to have” but not “need to have”. Thus, we presume that corporates will focus more on cash flow preservation and are willing to 1) start new restructuring programmes; 2) focus more intensely on working capital programmes; and 3) start to divest under- or non-performing assets.


PwC ranked #1 Global and Swiss M&A Advisor by Volume for 2022

Our PwC Corporate Finance team has ranked as the Global and Swiss #1 M&A Advisor by Volume for 2022 by Thomson Reuters, Bloomberg and Dealogic.

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