• Joshua Martin, Partner |

Avid watchers of the recent European football championship will be familiar with the term “a game of two halves”. For non-football fans, the phrase is used when one side dominates the first half, and the other side dominates the second. This analogy seems particularly apt for the Consumer & Retail M&A market in 2024.

The first half of the year saw defense come into play as economic uncertainty surged and deal volumes and values fell back across most geographies and subsectors. The big ticket deals barely even took the field.

However, like any good football fan at half-time, I remain positive that there will be an improvement in the second half. As an England supporter, you might think my view is based solely on hope. But I see very real reasons to believe that the second half of 2024 will bring positive momentum as Corporates resume their portfolio shaping and deals start moving on the back of easing interest rates.

In this blog post, I’ll review some of the activity from 1H 2024 and look ahead to some of the big trends that I believe will energize the Consumer & Retail M&A markets in the second half. To learn more about these trends and insights, I encourage you to contact your local KPMG member firm.

Blowing the whistle on the first half

It was, in most regards, a poor showing in the first half. Global Consumer & Retail M&A volume contracted by 22 percent year-on-year in the face of continued macroeconomic uncertainty and weak market sentiment. May and June ended up being the worst months in 1H as dealmakers stayed firmly on the sidelines. 

graph

Source: Refinitiv, M&A Data, accessed 17 Jul 2024

On a regional level, all regions witnessed a decline in activity. Americas saw a 22 percent contraction in deal volume, likely reflecting broader economic pressures and market uncertainties that kept many investors – particularly Private Equity – out of the game. Asia-Pacific also saw deal activity contract across most geographies with volume and value contract 18 percent. The EMEA region ended up with a 25 percent decline in volume amidst significant macroeconomic challenges.

5 themes to watch in the second half

As noted, I am confident that Consumer & Retail M&A activity will pick up through the second half of 2024 and into 2025. Here are five trends that I believe will underpin the revival.

1. Portfolio management for Consumer Packaged Goods companies. Having largely navigated a complex environment of supply price increases and changing channel mixes post-COVID, we are seeing growing pressure to ensure that product offerings remain relevant for the evolving consumer. As such, we expect portfolio shaping activity to be a key driver of M&A in the second half.

2. Downsizing and realignment in the Retail sector. The retail sector continues to grapple with margin pressures, compelling dealmakers to prioritize portfolio optimization and consider consolidation opportunities. As companies move to create greater agility to respond to customer preferences, we expect to see this trend play out in a number of key transactions in the sector going forward.

3. New investors making direct investments. More recently, we have seen a growing trend of sovereign wealth funds (SWFs) making direct investments within the consumer sector. Over the past three years, SWFs have been involved in 120 deals worth US$17 billion[1], underscoring their confidence in the sector's long-term potential and generating greater competition for value deals.

4. Private Equity eyes the field. The economic uncertainty has led PE houses to focus on enhancing their portfolios through value creation initiatives and continuation funds. But pressure is growing on fund managers to invest their dry powder and start generating returns for their investors. While PE remains cautious, we expect to see some early activity over the coming months as players seek to make deals and valuation expectation gaps narrow.

5. Looking for scaling growth. The pressure to deliver top line growth through volume increases is intensifying now that the pricing environment is normalizing. As we move into the second half of 2024, we expect that the pursuit of strategic positioning and growth scaling will drive higher levels of M&A activity globally.

Halftime is when the game starts

While the first half of 2024 has been marked by significant challenges and contractions in activity, the underlying confidence in high-value deals and signs of increasing portfolio activity from corporate players paint a picture of cautious optimism. When combined with some softening in the interest rate environment, I believe we can expect an increase in activity in the second half. 

In this game, however, there is no extra time or penalty shootouts. I think it will be a nailbiter right up to the final whistle.

Footnotes:

[1] Mergermarket, accessed on 15 July 2024

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