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Despite disruption, deal intentions remain well above long-term average

Global Capital Confidence Barometer | Consumer Products & Retail | 17th edition

Disruption is coming from all angles and no single topic dominates the boardroom agenda for CPR companies

Consumer products and retail (CPR) executives indicate that disruption is coming from all angles. As such, no single topic dominates the discussion as CPR respondents place equal importance on various issues, from the impact of digital technology, to identifying opportunities for growth, to shareholder activism.

The range of disruptive forces is causing slight hesitation over the state of the CPR sector among executives. Seventy-nine percent of CPR executives cite the global economy as improving, largely as a result of a stronger-than-expected turnaround in economic activity in the Eurozone, coupled with an ongoing positive outlook for China and the US.

However, disruption in the industry has CPR executives feeling more subdued about their sector’s growth. With changing consumer expectations, growth is shifting from established players to more agile companies. Average year-over-year sales growth of the largest CPR companies has declined in recent years. Yet, 57% of CPR respondents still see growth in their sector as improving, a sentiment that is supported by other positive economic fundamentals such as rising confidence in corporate earnings.

M&A remains a priority even as CPR companies focus attention on organic growth

After a number of moves in the last few years, CPR companies feel increasingly confident that they have the right mix for nurturing organic growth, with 64% of CPR executives indicating that they are focusing primarily on existing operations and products as they look to create an omni-channel world.

That said, 55% of CPR respondents say they intend to actively pursue acquisitions over the next 12 months, and 36% expect growth to come from M&A, joint ventures and, increasingly, alliances. Although disruption has CPR companies indicating a less bullish outlook than six months ago, dealmaking intentions among CPR companies remain well above the long-term average.

Supportive market factors, including low interest rates, surplus cash reserves, a congested deal pipeline and a very active private equity base, are likely to propel M&A during the coming months. With 98% of CPR respondents indicating that they expect the number of deal completions to increase or remain the same over the next 12 months, companies appear to be more confident in their ability to target, assess and conduct a suitable level of due diligence prior to making a bid.

Key themes in M&A activity expected in 2018

As we look forward, we expect CPR companies will remain optimistic on deal activity. A key theme to watch for will be an increase in shareholder activism, as a low-yield environment compels such investors to look for other avenues to boost returns. As well, we expect to see an increase in cross-border dealmaking as companies look to tap into new areas of growth, and the return of private equity looking to spend a sizeable amount of capital and challenge CPR companies for high-value assets.

EY - Ryan Burke

Ryan Burke

Global Consumer
Products & Retail
Leader — Transactions

+1 214 969 8609