Executive Briefings

Retail, Consumer Products Sectors See Multibillion-Dollar Transactions in First Quarter

U.S. retail and consumer merger & acquisition (M&A) activity during the first quarter of 2013 was defined by six multibillion-dollar transactions, including one of the largest consumer products deals in history, and alternative deal structures employed to achieve strategic objectives, according to PwC's U.S. retail and consumer deals insights Q1 2013 report.

Retail, Consumer Products Sectors See Multibillion-Dollar Transactions in First Quarter

For the three-month period ending March 31, 2013, there were a total of 27 deals in the retail and consumer sector with disclosed values greater than $50m, accounting for $39.8bn in deal value. Deal volume increased 59 percent from the 17 deals during the first quarter of 2012, while deal value rose 590 percent from $5.8bn in Q1 2012.  Deal value was driven by the purchase of HJ Heinz by Berkshire Hathaway Inc. and 3G Capital Partners Ltd (a total value of $28bn, including the assumption of approximately $4.5bn of debt).  Excluding the Heinz transaction, total deal value for the quarter was still more than double that of the prior year's first quarter.

On a sequential basis, deal activity in the retail and consumer sector declined in volume from the highs in the fourth quarter of 2012 due in part to the pressure to execute deals in 2012 before the fiscal cliff and pending tax increases, according to PwC.

"The potential negative impact of the fiscal cliff on transactions during the first quarter of 2013 was more subdued than anticipated as deal activity was up significantly compared to the first three months of 2012," said Leanne Sardiga, partner and PwC's U.S. retail & consumer deals leader. "The attractiveness of the retail and consumer sector as a whole, along with continued availability of capital from both corporate and private equity players, contributed to a positive retail and consumer deals environment. The jump in total deal value was driven by several multibillion-dollar transactions."

PwC notes that private equity buyers continued their positive momentum from 2012, as announced deals with values greater than $50m were up 18 percent in volume from Q4 2012. Private equity deal values increased to $31.3bn in Q1 2013 compared to $3.8bn in Q4 2012 and $800m in Q1 2012. Although the increase was largely due to the Heinz deal, the total PE deal value was still $7.8bn even excluding that deal, which was just below the recent peak seen in Q2 of 2012. In fact, since 2007, there have been only six other quarters with PE deal value in the retail and consumer industry exceeding $7bn.

Cross-border activity has been trending up and represented 44 percent of deal volume in Q1 2013 compared to 40 percent on average annually over the last five years. Outbound deal activity has been more prevalent so far in 2013.

In recent quarters, the retail and consumer sector has also seen continued activity in corporate restructuring and spin-offs, as companies reassess their portfolios and positioning in an increasingly competitive environment. Recent corporate spin-offs have generally focused on realigning businesses to distribution channels or high- versus low-growth product segments. Only one spin-off was noted during the first quarter of 2013, according to the report. Additionally, there were several large divestitures during the quarter. Divestitures as a percentage of deal volume were up slightly to 31 percent during the quarter versus 30 percent in Q4 2012 and Q1 2012.

Source: PwC

For the three-month period ending March 31, 2013, there were a total of 27 deals in the retail and consumer sector with disclosed values greater than $50m, accounting for $39.8bn in deal value. Deal volume increased 59 percent from the 17 deals during the first quarter of 2012, while deal value rose 590 percent from $5.8bn in Q1 2012.  Deal value was driven by the purchase of HJ Heinz by Berkshire Hathaway Inc. and 3G Capital Partners Ltd (a total value of $28bn, including the assumption of approximately $4.5bn of debt).  Excluding the Heinz transaction, total deal value for the quarter was still more than double that of the prior year's first quarter.

On a sequential basis, deal activity in the retail and consumer sector declined in volume from the highs in the fourth quarter of 2012 due in part to the pressure to execute deals in 2012 before the fiscal cliff and pending tax increases, according to PwC.

"The potential negative impact of the fiscal cliff on transactions during the first quarter of 2013 was more subdued than anticipated as deal activity was up significantly compared to the first three months of 2012," said Leanne Sardiga, partner and PwC's U.S. retail & consumer deals leader. "The attractiveness of the retail and consumer sector as a whole, along with continued availability of capital from both corporate and private equity players, contributed to a positive retail and consumer deals environment. The jump in total deal value was driven by several multibillion-dollar transactions."

PwC notes that private equity buyers continued their positive momentum from 2012, as announced deals with values greater than $50m were up 18 percent in volume from Q4 2012. Private equity deal values increased to $31.3bn in Q1 2013 compared to $3.8bn in Q4 2012 and $800m in Q1 2012. Although the increase was largely due to the Heinz deal, the total PE deal value was still $7.8bn even excluding that deal, which was just below the recent peak seen in Q2 of 2012. In fact, since 2007, there have been only six other quarters with PE deal value in the retail and consumer industry exceeding $7bn.

Cross-border activity has been trending up and represented 44 percent of deal volume in Q1 2013 compared to 40 percent on average annually over the last five years. Outbound deal activity has been more prevalent so far in 2013.

In recent quarters, the retail and consumer sector has also seen continued activity in corporate restructuring and spin-offs, as companies reassess their portfolios and positioning in an increasingly competitive environment. Recent corporate spin-offs have generally focused on realigning businesses to distribution channels or high- versus low-growth product segments. Only one spin-off was noted during the first quarter of 2013, according to the report. Additionally, there were several large divestitures during the quarter. Divestitures as a percentage of deal volume were up slightly to 31 percent during the quarter versus 30 percent in Q4 2012 and Q1 2012.

Source: PwC

Retail, Consumer Products Sectors See Multibillion-Dollar Transactions in First Quarter