- There were 312 FMCG cross-border deals in 2016, worth a total of US$57.5bn – volume is down on 2014 and 2015, but up on every year between 2009 and 2013.
- In the Home and Personal Care sub-sector, deal value is up 68% from US$6.5bn to US$10.9bn.
- Four of the top ten FMCG cross-border deals in 2016 featured European buyers, including the largest, which saw France’s Danone buy US-based WhiteWave Foods for US$12bn.
- In 2015-2016, the US was the most-targeted and the most-acquisitive market by volume.
Much like the overall M&A market, the fast-moving consumer goods sector (FMCG) is not moving quite as fast as it did last year. Year-on-year, volume is down 17% and value 68% (although this is very much due to the US$122.8bn SABMiller/Inbev megadeal, which accounted for 66% of value in the sector in 2015). However, a closer look at the figures shows that, overall, M&A is up on every year between 2009 and 2013, with sub-sectors such as home and personal care showing a marked increase in year-on-year deal value.
Unlike a number of sectors such as pharmaceuticals or financial services, FMCG has delivered a steady flow of deals this year, in part since it has not been as susceptible as others have been to the regulatory or political upheavals that have characterized 2016. However, if the deal market is to thrive in 2017, the sector needs to continue building on three major shifts – healthier and premium products, digitalization and global brand building.
Health makes wealth
Organic, local, additive and cruelty-free are the labels that consumers crave – particularly millennials. And they are willing to pay a premium for them. “Healthier and premium products are driving, and will continue to drive, a lot of growth in FMCG M&A,” says David Scott, corporate partner at Baker McKenzie. “And there are much bigger margins to be made in that sector.”
This move to meet changing consumer demand has been a key factor in dealmaking in the FMCG market in 2016. The largest deal of the year saw French dairy giant Danone buy WhiteWave Foods, a natural, health-focused beverage business for US$12bn in July. The purchase will not only build Danone’s healthy product portfolio but will also help expand the business’ footprint in the US.
US soft drinks company, Dr Pepper Snapple (DPS), had a similar rationale when it agreed to buy Bai Brands, maker of coconut water and antioxidant-rich fruit drinks, for US$1.7bn in November.
In addition to higher margins, premium products can lift brand perception overall and give owners pricing power across their range. “This is why Unilever, for example, is moving into premium products in the personal care space, because it enables them to exert a bit more authority across the range,” says Tim Gee, a partner in Baker McKenzie’s London practice. The consumer giant recently bought Seventh Generation, an eco-friendly, "natural" home and personal care products company based in Vermont, US, to add to a number of premium personal care acquisitions made over the last couple of years.
Allying your business with healthier and more prestige product ranges can also help raise a company’s standing among consumers. “Companies are looking to drive up their reputation. And they are using these types of products to do that,” says Scott.
Digital drives deals
The inexorable march of technology has wired its way into every sector—and FMCG is no exception. New platforms, new models and new delivery systems are revolutionizing the industry and companies need to seize these opportunities now. In such a frenzied and fast-moving environment, building new digital platforms isn’t always viable—but buying them often is. “FMCG companies are not good at developing their own technology platforms,” says David Fleming, partner in Baker McKenzie’s Hong Kong practice. “But there is a willingness to engage a different sales model using digital platforms. And this will drive M&A.”
Innovation is creating new types of transactions in the FMCG sector because deals are no longer about traditional supply change management but about digital capability. “There are many different models when selling over the internet,” says Gee. “Transactions will cover a number of models. Clearly, online sales are going to be a big area of growth over the next period. All the big consumer companies are looking at how they can do that and this will promote deals.”
One such deal was Unilever’s reported US$1bn acquisition of five-year-old start-up Dollar Shave Club (DSC), an online subscription service that delivers shaving products on a monthly basis. Innovative companies such as DSC are disrupting the FMCG sector and a wave of M&A could soon hit as corporates and buyout firms battle for the smartest new start-ups. “You will see plenty of corporate venture transactions where the majors buy up recently established, blossoming micro brands and then see if they can globalize them,” says Gee. “You’ll also see a lot of competition between the private equity houses and the big corporates to get their hands on those brands that are just about to really lift off.”
For long-term success, companies in the FMCG sector need brands that are truly global—but products that work in one location often fail elsewhere. With that in mind, companies are searching for indigenous brands that can help expand their footprint worldwide. “It’s all about coloring in the map,” says Gee. “Companies want to create truly global brands.”
This desire for worldwide recognition has driven a number of high-profile deals in 2016. One of the largest saw Japanese brewer Asahi acquire SABMiller’s eastern European brewing assets for US$7.8bn. The purchase of these premium beer brands will help Asahi extend its reach across Europe. In a similar deal in June, Germany’s Henkel bought US laundry products company Sun Products for US$3.6bn—putting it into second place in the laundry care market in North America.
For companies expanding globally, Asia is crucial: “There are young mass populations across all of the geographies in the region, and a number of these markets spend or are going to spend a lot of money on premium products,” says Scott. “Pretty much all Asian markets are growing,” agrees Fleming. “China and India, obviously, but Indonesia and Thailand are also interesting. There is a lot of food production in Thailand and I think that, as part of its growth phase, we are going to see their market change.”
One deal that characterizes the importance of Asia is coffee empire Jacob Douwe Egberts’ (JDE) US$1bn bid for the Singapore-based beverage manufacturer, Super Group. At the time of the deal in November, Pierre Laubies, CEO of JDE, said: “As part of our global coffee strategy, we are excited to expand our footprint into the strategically important Southeast Asian growth region.”
Baker McKenzie is optimistic about growth in the FMCG market in 2017: “Unlike other sectors, regulatory issues do not really affect the fundamentals of whether or how FMCG companies develop their business and products,” says Gee. “It will be a very positive year for M&A in consumer goods next year.”