Multibillion-dollar Deals Drive Retail, Consumer M&A Activity in Early 2014
By: PwC US May 09, 2014
U.S. retail and consumer merger & acquisition activity during the first quarter of 2014 was primarily driven by five multibillion-dollar transactions, with more than half aligned to the food and beverage sector, confirming a positive deals outlook for the year, according to PwC's U.S. retail and consumer deals insights Q1 2014 report.
For the period ending March 31, 2014, there were a total of 34 deals in the retail and consumer sector with disclosed values greater than $50m, accounting for $39.3bn in total deal value. Deal volume for the quarter was consistent with the first quarter of 2013, while deal value was down 14 percent from the prior year. However, excluding the purchase of HJ Heinz by Berkshire Hathaway Inc. and 3G Capital Partners Ltd (a total value of $28bn) in Q1 2013, total deal value for the first quarter of 2014 was up 119 percent year-over-year.
“Deal activity showed strength in the first quarter of 2014, dominated by multibillion-dollar deals in the food and beverage sectors, and confirms our positive outlook for the remainder of the year,” said Leanne Sardiga, partner and PwC’s U.S. retail & consumer deals leader. “According to our Global CEO Survey, retail and consumer goods CEOs are seeing a need to change their strategies around M&A, joint ventures and strategic alliances to capitalize on global trends they believe will most transform their business. But with very few retail CEOs saying a change program is under way or completed, we believe this suggests further M&A is on the horizon – and we’re currently helping many companies with these strategic overhauls.”
Cross-border activity increased during the quarter, on a year-over-year and sequential basis, representing 59 percent of total deal volume during the first quarter of 2014 – higher than the average, 51 percent, over the last eight quarters. This rise in cross-border transactions is expected to continue through 2014 as retail and consumer companies increasingly look to expand into faster-growing international markets to bolster stagnant organic growth in their home market, as well as to drive growth from an expanding middle class internationally. Accordingly, PwC’s Global CEO Survey found that 18 percent of retail and consumer CEOs plan to initiate or complete a cross border deal in the coming twelve months.
PwC’s analysis notes that private equity (PE) activity remained strong in Q1 2014, led by the proposed $8.5bn acquisition of Safeway Inc. PE deal volume represented 24 percent of total retail and consumer deal volume, down from 28 percent in Q4 2013, and down from 37 percent in the first quarter of 2013. PE deal value was 30 percent in the quarter, up from 12 percent in Q4 2013, but down from 77 percent during the first quarter of 2013 (which can be directly attributed to the HJ Heinz mega deal).