New York -- U.S. retail and consumer merger & acquisition activity during first quarter 2014 was primarily driven by five multibillion dollar transactions, with more than half aligned to the food and beverage sector, confirming a positive deals outlook for the year, according to PwC’s U.S. retail and consumer deals insights first quarter 2014 report.
For the three month period ending March 31, 2014, there were a total of 34 deals in the retail and consumer sector with disclosed values greater than $50 million, accounting for $39.3 billion in total deal value. Deal volume for the quarter was consistent with first quarter 2013, while deal value was down 14% from the prior year. However, excluding the purchase of HJ Heinz by Berkshire Hathaway Inc. and 3G Capital Partners Ltd (a total value of $28 billion) in first quarter 2013, total deal value for first quarter 2014 was up 119% year-over-year.
“According to our Global CEO Survey, retail and consumer goods CEOs are seeing a need to change their strategies around M&A, joint ventures and strategic alliances to capitalize on global trends they believe will most transform their business,” said Leanne Sardiga, partner and PwC’s U.S. retail & consumer deals leader. “But with very few retail CEOs saying a change program is underway or completed, we believe this suggests further M&A is on the horizon – and we’re currently helping many companies with these strategic overhauls.”
Cross border activity increased during the quarter, on a year-over-year and sequential basis, representing 59% of total deal volume during first quarter 2014 – higher than the average, 51%, over the last eight quarters. The rise is expected to continue through 2014 as retail and consumer companies increasingly look to expand into faster-growing international markets to bolster stagnant organic growth in their home market, as well as to drive growth from an expanding middle class internationally.
Accordingly, PwC’s Global CEO Survey found that 18% of retail and consumer CEOs plan to initiate or complete a cross border deal in the coming twelve months.
PwC’s analysis notes that private equity (PE) activity remained strong in first quarter 2014, led by the proposed $8.5 billion acquisition of Safeway Inc.
Spin-offs and divestitures remained a key strategy in the quarter for retail and consumer companies looking to refocus their core businesses, and those in the food and beverage sectors have been the most active over the last five years.
Divestitures were up slightly to 33% during first quarter 2014 compared to 31% in fourth quarter 2013 – consistent with the average for the last eight quarters. According to the report, spin-offs also remain quite prominent in the sector, with eight transactions in the pipeline as well as a continued level of overall shareholder activism.
Activity is expected to increase in the remaining quarters of 2014 as the retail and consumer IPO pipeline is the strongest the sector has seen since April 2012, with 16 companies on file expecting to raise $4.7 billion, contingent upon volatility in the market affecting these potential transactions.
“A number of key deals this quarter were consistent with several of the themes we’ve been seeing over the past year, including PE investment in retail and continued activity in non-store retailing. In fact, the trend of blurring the lines of retail and technology companies continues to drive deal activity as retailers look at acquisition opportunities to quickly transform their businesses and capabilities to adapt to and better meet evolving consumer expectations, and as shoppers increasingly look to digital and mobile channels,” Sardiga said.