PwC: 2013 Saw $100 Billion in Retail, Consumer Goods Mergers

U.S. retail and consumer (R&C) total transaction value for 2013 surpassed $100 billion for the first time since 2008, according to PwC's US retail and consumer deals insights 2013 Year in Review and 2014 Outlook report released today.

Deals in the food and beverage sector and private equity (PE) investment in the apparel, footwear and accessories sector continued to drive activity in the R&C industry.

The report finds that transaction value for announced deals with values greater than $50 million was $107 billion, up 32 percent from $81 billion in 2012 – and this five-year high was due largely to the $28 billion Berkshire Hathaway/3G and Heinz mega deal. Deal volume for announced transactions with values greater than $50 million declined slightly, by 2 percent, to 126 deals in 2013, partially due to the abnormally higher deal volume during Q4 of 2012 when many deals were pulled forward prior to the fiscal cliff and tax rate changes.

"Although total retail and consumer deal volume fell during 2013, the sector represented about 12 percent of total U.S. deal volume for the year – and R&C deal value increased to a five-year high," said Leanne Sardiga, partner and PwC's US retail & consumer deals leader.

"At PwC, we're tracking five macroeconomic megatrends that are shaping the world and economy that have implications on M&A strategy," Sardiga continued. "They consist of accelerating urbanization, demographic shifts, climate change and resource scarcity, shifts in global economic power and technological breakthroughs. We're working with R&C companies so they can understand the resulting impact and the potential for using M&A to more quickly capitalize on the market opportunities."

According to PwC, PE activity in the retail sector slowed, but surged in the consumer sector. For deals with values greater than $50 million, PE comprised 26 percent of retail deal volume and 42 percent of the retail deal value in 2013 compared to 37 percent and 45 percent in 2012, respectively. In the consumer sector, PE comprised 27 percent of deal volume and 46 percent of deal value in 2013 compared to 17 percent and seven percent in 2012, respectively.

The report notes that IPO volume and proceeds improved significantly from 2012, with total R&C proceeds having reached $10.3 billion in 2013, representing a 220 percent increase over the prior year. Overall, the year saw 29 IPOs compared to 22 in 2012. The improvement, according to PwC, was largely due to the increasing investor appetite for growth companies, low volatility, and strong equity markets in Q4 2013.

For disclosed deals over $50 million, cross border deal activity was lower than prior year levels, representing 37 percent of R&C deal volume and 33 percent of deal value in 2013. Outbound deal activity remained more prevalent in 2013, consisting of 59 percent of cross border deal volume and 45 percent of cross border deal value. PwC expects that R&C companies will continue to invest in faster-growing international markets – both organically and through acquisitions and joint ventures – with China and Brazil remaining a focal point as their middle class continues to expand and their consumer economies grow.

In 2013, there was only one corporate spin-off that was announced and completed. However, towards the end of the year, several companies announced plans to spin businesses, which PwC expects will be completed in 2014. Longer-term, PwC believes an increased level of shareholder activism may help spur spin-off activity, which is expected to remain a key strategy within the sector.
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