Analysis: As inflation soars, European consumer goods M&A slows

Analysis: As inflation soars, European consumer goods M&A slows

July 28, 2022 Off By administrator

Bottles of shampoos are displayed for sale on shelves at a Tesco supermarket in south London, Britain, October 9, 2017. REUTERS/Hannah McKay/File Photo

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  • Consumers switching to private label from branded products
  • M&A valuations hard to agree
  • Number of European consumer & retail deals falls by a quarter

LONDON, July 28 (Reuters) – As a cost-of-living crisis with no end in sight sends shockwaves through Europe, deals in the region’s retail and consumer-products industries have slowed dramatically – even more so than in other sectors, data shows.

Record inflation around the world has changed the way people shop, with many families trading down to cheaper private label products instead of the key brands that the likes of Unilever (ULVR.L), Procter & Gamble (PG.N) and Nestle (NESN.S) advertise so heavily.

In Europe, amid uncertainty around the consumer goods and retail industries – and with a potential recession looming – corporate buyers and sellers are finding it hard to agree on valuations, according to six bankers and M&A lawyers at major firms.

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“We’re seeing down trading within the retail aisles so people are not buying branded products anymore. They’re buying private label,” said Gaurav Gooptu, a managing director in BNP Paribas’ investment banking team advising clients in the consumer, health and retail sector.

“If there’s a demand-side slowdown and ultimately a recession, that means a hit to top and bottom-line at consumer packaged goods companies and ultimately valuations will get impacted,” he said.

The amount spent on acquisitions in the European consumer and retail industry has slumped 38% to $45 billion so far this year versus the same period last year, according to Refinitiv data. In comparison, deals across all sectors are down only 4% to $601 billion.

“M&A has slowed this year. Larger strategic deals that have been a long-time germinating have been happening but some mid-cap deals, particularly private equity-driven, have hit the road blocks,” Robert Plowman, co-head of Citi’s EMEA Consumer Products Investment Banking team, said.

The number of European consumer and retail deals has declined 24% to 1,074, the Refinitiv figures show, while the number of deals across all sectors is down by 12% to 10,425.

To be sure, global dealmaking across the board is entering an arid season as raging inflation and a stock market rout curb the appetite of many corporate boards to expand through acquisitions. read more

DEAL OR NO DEAL?

Indian conglomerate Reliance Industries Ltd (RELI.NS) and U.S. buyout firm Apollo Global Management (APO.N) confirmed in April that they were planning a joint bid for UK high street pharmacy chain Boots – that deal has since fizzled out, however.

Similarly, at the start of this year, Dove soap maker Unilever (ULVR.L) failed to clinch a deal to buy GlaxoSmithKline’s (GSK.L) consumer health business despite making…

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