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

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

LONDON, July 28 (Reuters) – As a cost of living crisis with no end in sight sends shockwaves across Europe, deals in the retail and consumer goods sectors of the region have slowed considerably – even more than in other sectors, according to the data.

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

In Europe, amid uncertainty surrounding the consumer goods and retail sectors – and with a possible recession looming – corporate buyers and sellers are struggling to agree on valuations, according to six bankers and lawyers in mergers and acquisitions of large companies.

“We are seeing a drop in sales in the retail aisles, so people are not buying branded products anymore. They are buying private label products,” said Gaurav Gooptu, managing director of the team at investment bank of BNP Paribas which advises clients in the consumer, health and healthcare sectors. distribution sector.

“If there is a slowdown in demand and eventually a recession, that means a big hit to the top line and bottom line for consumer packaged goods companies and ultimately valuations will be affected,” he said. -he declares.

The amount spent on acquisitions in Europe’s consumer and retail sector fell 38% to $45 billion so far this year compared to the same period last year, according to data from Refinitiv. By comparison, deals across all sectors fell just 4% to $601 billion.

“Mergers and acquisitions have slowed this year. Larger strategic deals that had been sprouting for a long time have occurred, but some mid-cap deals, particularly private equity-focused, have run into hurdles,” said Robert Plowman, co-head of the EMEA division of Citi. Consumer Products Investment Banking team, said.

The number of European transactions for consumers and retailers fell by 24% to 1,074, according to Refinitiv figures, while the number of transactions across all sectors fell by 12% to 10,425.

To be sure, global transactions at all levels are entering a dry season as runaway inflation and a stock market rout dampen the appetite of many corporate boards to grow through acquisitions. Read more

DEAL OR NO DEAL?

Indian conglomerate Reliance Industries Ltd (RELI.NS) and US takeover firm Apollo Global Management (APO.N) confirmed in April that they were planning a joint bid for UK pharmacy chain Boots – however that deal has since fallen through .

Similarly, earlier this year, soapmaker Dove Unilever (ULVR.L) failed to strike a deal to buy GlaxoSmithKline’s (GSK.L) consumer healthcare business despite three offers. The company was listed this month with a market value of 30.5 billion pounds ($36.72 billion), well below Unilever’s final offer of 50 billion pounds.

Speculation emerged earlier this year that Enfamil maker Reckitt Benckiser (RKT.L) was considering selling its formulas business, but since then reports have indicated the potential deal has garnered little publicity. interest from buyers.

Consumer companies are also pouring money that could have been earmarked for big acquisitions into buying companies that are part of supply chains shaken by the pandemic.

“There are a lot more companies trying to get a handle on their supply chain,” said Kurt Haegeman, global president of consumer goods at law firm Baker McKenzie.

Ensuring that targets meet potential future European Commission sustainability requirements has also given some companies pause before making bids.

“These laws will require companies to examine their production facilities to verify what they are doing,” said Jacquelyn MacLennan, a partner at law firm White & Case.

Trading volumes may not recover until 2023.

“People who have businesses for sale are thinking, let’s wait until after the summer or next year and see what happens rather than act now,” said Citi’s Plowman. “We won’t know until the third or fourth quarter what things will look like next year.”

($1 = 0.8306 pounds)

Reporting by Richa Naidu; Editing by Matt Scuffham, Kirsten Donovan

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