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In 2023 the consumer sector M&A market experienced a year-on-year 7% drop in deal volume and a 31% decline in deal values. Unprecedented, once-in-a-generation macroeconomic factors such as the war in Ukraine, stubbornly high inflation, raised interest rates and increased scrutiny from regulators dampened activity significantly. While not unique to the sector, the impact of declining real incomes and consequent reduction in discretionary spend had a major impact.

Market characteristics

Divestments and carve outs remained popular as corporates looked to cut costs and simplify their structures. ESG and tech investments were still seen as key to future proofing businesses and protecting portfolios. Mike Ashley's Frasers Group acquired a 19% stake in AO world, the UK's biggest seller of domestic appliances. Companies wanting to scale up their physical footprint at pace took advantage of the challenging retail market as seen with B&M European Value Retail acquiring 51 shops from Wilko after it entered administration. This had echoes of ABF's acquisition of Littlewoods which turbocharged Primark in the noughties.

In China there was some pickup in M&A activity as suspended M&A projects revived, encouraged by the Chinese Government’s focus on encouraging household spending.

Deal dynamics: Be prepared

The high cost of debt continued to make it difficult for buyers and sellers to agree on valuations – this may ease a little this year but we are still seeing a gap in valuation expectations, as well as the use of innovative methods to bridge the gap, as we discuss in our article "Selling the deal" in our 2024 global M&A report. In many jurisdictions covenants continue to be a focus, with buyers keen to protect themselves in a volatile geopolitical environment. We are also seeing Transitional Service Agreements being more hotly negotiated, as sellers seek to protect their exposure. Likewise conduct obligations and working capital adjustments.

On the due diligence front, buyers are drilling down harder to understand any potential supply side risks and, subject to gun jumping strictures, wanting increased access to a business between signing and completion. This has gone up the priority list with increased regulatory scrutiny around foreign direct investment (FDI) and merger control issues meaning longer periods between signing and completion – see our global M&A report for 2024 for more on the regulatory regimes that impact M&A transactions and how to navigate them.

ESG continues its growing significance in M&A activity (as we discuss here in more detail) with a rise in the number of queries during the due diligence deal phase. ESG compliance reporting frameworks give buyers the opportunity to consider whether target businesses share their ESG priorities and provide a greater emphasis when negotiating warranty packages and covenants, placing a premium on businesses with a high degree of ESG compliance.

Opportunities remain for well-funded buyers ready to act quickly to execute a deal when the right opportunity comes along.

The high cost of debt continued to make it difficult for buyers and sellers to agree on valuations – this may ease a little this year but we are still seeing a gap in valuation expectations."

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Portfolio refinement continued

With the decrease in consumer spending, organisations continue to reshape their business by identifying non-core or underperforming assets for divestment. As well as providing attractive investment opportunities to PE and trade buyers targeting strong brands with stable cash flows, it enables sellers to deleverage balance sheets and free up capital. Aryzta continued its “Project Renew” initiative by divesting its stake in Delice de France, to Financière LM and has announced plans to sell off more non-core businesses.

Geopolitics have created an impetus for companies to sell assets in difficult markets. Daiso, a South Korean-based household product wholesaler became fully Korean-owned after Japanese shareholder Daiso Sangyo sold its stake following boycotts due to anti-Japanese sentiment in South Korea. We discuss the impact that geopolitics is having on M&A in more detail here.

Winners and losers

The leading consumer sub-sectors for M&A activity in 2023 were Health & Wellness, Pet Products, Personal Care Products, and Grocery, all viewed as being more resilient to market cycles. The pet food and pet care subsector remained a strong investment focus with over 40 (low value) deals in the first half of 2023. Consumer services (lawn care, food delivery, home cleaning, etc) is an expanding area due to its recurring revenue streams. Similarly, the return of business travel to almost pre-pandemic levels has seen corporate activity in the travel sub-sector increase.

The discretionary sectors including Clothing and Household Goods significantly underperformed due to lower demand. However, some distressed opportunities arose. In the UK, Next bought the Cath Kidston brand after it went into administration to add it to its portfolio which includes Joules and We expect higher levels of distressed M&A and restructuring activity in 2024.

Paying a premium for the right brands

Despite the broader challenges, companies continue to be prepared to pay a premium for the right assets. In the luxury segment, Kering completed the acquisition of Creed fragrance for US$3.5 billion, with an estimated EBITDA multiple of 23 times. L'Oreal splashed out US$2.5 billion to acquire hand and body care soap maker Aesop, bringing with it the potential for significant growth in key geographies such as China. In November, the confectionary giant Mars agreed to acquire Hotel Chocolat in a £534 million deal at a 170% premium and demonstrated continued appetite for mid-cap deal activity. 

What next?

Despite the ongoing challenges, we are cautiously optimistic that deal activity will pick up in 2024. Corporates with strong balance sheets and PE funds with record levels of dry powder to deploy will continue to invest in the sector. Businesses with strong brands and good economic fundamentals will remain attractive targets.

Key contacts

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Alex Kay

Partner, London

Alex Kay
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Sophie Thompson

Senior Associate, London

Sophie Thompson
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Andrew Rich

Partner, Global Co-Head of Consumer Sector, Sydney

Andrew Rich
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中国公司事务主管合伙人, Shanghai


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Mergers and Acquisitions Consumer Consumer Alex Kay Sophie Thompson Andrew Rich Nanda Lau