EY ROMANIA

  |  19.08.2013

New global competitors emerge in the consumer products sector

Deal activity in the global consumer products sector declined significantly in Q2 2013 compared with the previous three-month period, recording the lowest quarterly total volume of the 12-quarter review period

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Total disclosed deal value also dropped markedly, although there were three megadeals announced during the quarter.

 

Despite this, a decent rebound in deal volumes is expected in Q3 2013. These more pronounced quarter-by-quarter fluctuations remain consistent with EY’s expectation for a gradually improving trend in the level of deal activity. 

 

There were 294 consumer products deals announced in Q2 2013, a decrease of 15% compared with Q1 2013, although on a year-on-year basis the decline was a more modest 5%. Quarter-by-quarter fluctuations in deal activity can be exaggerated by the timing of deal announcements, which could in part explain the size of the second-quarter drop.

 

On the other hand, these lower levels of activity may also partly reflect greater uncertainty about the growth outlook in China and other emerging markets and continuing economic weakness in Europe. The US, by contrast, is improving, which helps explain this year’s prominence of US-based transactions among the largest deals.

 

The decline in deal volumes was mainly in smaller corporate food transactions, which in many quarters make up the bulk of deal volume. While the top 10 deals contained four food transactions, including the megadeal purchase of Smithfield Foods by Shuanghui International Holdings, the overall number of deals in the subsector fell by a fifth, to 50 deals. In comparison, deal volumes in the household and personal care and beverage sectors were stable.

 

We would not expect this decline in the number of smaller food deals to become an established trend. Firstly, food is the most fragmented of the consumer products subsectors, making it ripe for consolidation. Secondly, growing numbers of smaller transactions form the underlying foundation of the improvement in deal activity in recent quarters, and we expect this pattern to resume”, says Mihai Pop, Manager in Transaction Advisory Services, EY Romania.

 

New global competitors

The second quarter of 2013 provided two examples of transactions whose rationale is to create a new global competitor. Joh. A. Benckiser took Amsterdam-listed D.E Master Blenders private in a USD 8.3bn deal with the stated aim of challenging for the global number one position in coffee. China’s largest meat processing company, Shuanghui International Holdings, agreed to buy US pork producer Smithfield Foods to extend its geographic reach and secure a source of supply.

 

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