Valuations are starting to recalibrate across consumer markets, a result of inflation and a slowing economy directly affecting consumers and leading to a decline in consumer sentiment in most markets—below levels reached during the Global Financial Crisis. While we expect uncertainty to lift only gradually during 2023, we are cautiously optimistic that long-term trends and underlying factors will lead to more stable M&A activity compared to 2022.
Investors will continue to focus on refining their portfolios—in particular those in consumer health and direct-to-consumer—to adapt to consumer trends that have accelerated during the COVID-19 pandemic. Crisis resilience and adaptation to new ways of working and living will drive deal activity as well as the ever-important strategic search for growth and margin.
With public companies’ valuations reset and liquidity issues potentially affecting strategically sound businesses, we also expect opportunistic transactions led by cash-rich corporates and private equity (PE) with available cash and funding options.
“Challenges will remain on the consumer front in 2023 with inflation at historical highs and rising interest rates further eating into spending power. Investors will seek to actively position for the economic rebound and continue to rely on M&A to deliver on their strategic priorities.”
M&A hot spots
The sub-sectors likely to be hot spots of M&A activity in the next six to 12 months will tend to be those that are typically resilient in a downturn or that support capability-driven M&A, as follows:
- Grocery retail
- Consumer goods
- Pet care and pet food
- Consumer health
- Hospitality and leisure
- Transportation and logistics
Grocery retail
Prospects for 2023 dealmaking activity in the grocery retail sector remain strong, with a number of transactions already in the pipeline. This follows the relatively high level of activity in 2022 as companies look for strategic opportunities to scale operations, secure access to key products, and optimise portfolios. Recent examples include Kroger’s proposed merger with Albertsons in the US and CD&R’s deal to take the UK supermarket chain Morrisons private.
Another trend we expect to continue is grocery players investing in food producers to secure access to supply. This is illustrated by Lidl’s proposed acquisition of pasta manufacturer Erfurter Teigwaren and Aldi’s acquisition of two mineral water plants.
In addition, large French grocery retailers have continued to review their portfolios, in particular their international operations, divesting assets in some markets to refocus on their priorities and strengthen their balance sheets.
Consumer goods
Large fast-moving consumer goods (FMCG) operators will continue to reshape their portfolios, contributing to the M&A deal flow. Recent examples include:
Kellogg’s, which announced plans to separate its snacks business from its North America cereal business
Unilever, which announced it will continue to prune its portfolio but is also open to bolt-on acquisitions
General Mills, which announced its intention to continue reshaping its portfolio with strategic acquisitions and divestitures to further enhance its growth profile.
This reshaping of portfolios along category lines will likely pave the way for acquisitions, disposals, and other creative types of arrangements in 2023 and beyond. Examples of more complex deal structures are:
- Nestlé’s recently announced partnership with L Catterton, which will bring together its Freshly business with L Catterton’s Kettle Cuisine business, with Nestlé retaining a minority stake
- Estée Lauder’s proposed acquisition of the Tom Ford brand, with back-to-back licensing agreements with Zegna and Marcolin, covering the fashion and eyewear businesses, respectively.
Pet care and pet food
The pet sub-sector is expected to remain active from an M&A perspective as consumers continue to spend in this category. The growth prospects for this sector remain strong due to higher levels of pet ownership globally, a trend that has accelerated during COVID.
Corporate operators as well as PE players are expected to look for M&A opportunities to broaden their product offerings or expand their capabilities or geographic footprint. Examples of recent corporate dealmaking activity include:
- Mars Petcare’s announced acquisition of Canada-based Champion Petfoods to further broaden its offering within pet specialty and independent retail as well as digital commerce channels
- Symrise AG’s acquisition of China-based Wing Pet Food to expand its capabilities and presence in the Asia Pacific region.
Consumer health
The consumer health sector is expected to see further M&A activity as it continues to benefit from a combination of positive long-term growth trends, such as an aging population, greater consumer focus on health, challenges to public health funding, and increased digitalisation.
Following recent activity such as the listing of GSK’s consumer health business, Haleon and J&J’s announced separation of its consumer healthcare division, we consider it likely that in 2023 other corporate players will either follow a similar path in separating their consumer health businesses or engage in further portfolio optimisation. This portfolio optimisation will in turn result in further acquisitions and divestitures.
In addition, private equity firms are investing in platforms such as CVC’s Cooper Consumer Health and BC Partners’ acquisition of Havea. As these and other similar platforms seek to grow, further tuck-in acquisitions will inevitably ensue.
Large FMCG players have announced strategic intents to focus on consumer health and continue to rebalance their portfolios. Nestlé, for example, has announced plans for a review of strategic options for its peanut allergy drug Palforzia and will continue to invest to sharpen its focus on consumer care and medical nutrition, as illustrated by its acquisition of a majority stake in protein powder maker Orgain.
Hospitality and leisure
We expect to see strong interest and sustained deal activity in resilient sectors such as gaming and sports in 2023.
In the gaming sector, Allwyn Entertainment reached an agreement to acquire Camelot UK Lotteries after it secured the fourth UK National Lottery Licence. We expect to see continued geographic infill acquisitions by large operators, with the unknown being whether 2023 sees the return of a blockbuster US–UK online deal.
In the sports sector, the impact of COVID on industry finances has led to greater willingness to contemplate transactions at both the club and league levels. Recent examples of sports clubs and sports leagues that have seen M&A activity include the sale of Chelsea Football Club to an investor consortium and CVC’s investment in Ligue de Football Professionnel. We expect more sports assets to change hands during 2023, with potential sales of other leading football clubs in Europe and the possibility of related media rights deals.
In other traditionally active sectors, such as restaurants and outbound travel, the challenging economic environment is likely to delay a fuller post-COVID M&A recovery.
Transportation and logistics
During the second half of 2022, the easing of freight prices, stabilisation of supply chains, higher cost of capital, ongoing labour shortages and broader economic uncertainty all contributed to a cooling of deal activity in the transportation and logistics sector. We expect M&A will continue to be robust in 2023, although the recent trend of larger deals will likely give way to smaller carve-out transactions.
Additionally, players are likely to use profits boosted during the pandemic to develop end-to-end solutions on one hand and focus on different client segments on the other. For example, with recent acquisitions such as Pilot Freight Services and LF Logistics, AP Moller-Maersk has expanded its container shipping footprint. The German national rail operator, Deutsche Bahn, recently announced plans to start the sale of its Schenker logistics business, allowing the company to focus on its core business and use the proceeds to reduce debt.
M&A trends in the second half of 2022
Consumer markets deal volumes and values, 2018-2022
Sources: Refinitiv, Dealogic and PwC analysis
M&A volumes and values in consumer markets decreased between 2021 and 2022 by 16% and 32%, respectively. The decline was consistent with the broader M&A market, which quickly changed after a record year of dealmaking in 2021 as macroeconomic and geopolitical headwinds grew and consumer sentiment fell to levels not seen since the Global Financial Crisis. Not surprisingly, the largest decline in deal values was in the retail sector, due to a decline in megadeals—transactions with a value in excess of US$5bn—which decreased from eight in 2021 to two in 2022.
M&A trends were not uniform across countries or regions. They are indicative of a broader shift by investors to find opportunities and growth in other markets, as we detail further below:
- Asia Pacific: Deal volumes and values declined between 2021 and 2022 by 21% and 50%, respectively, mostly driven by China.
- EMEA: Deal volumes and values between 2021 and 2022 decreased by 14% and 15%, respectively. While deal volumes reset to pre-pandemic levels, deal values remained 64% higher than in 2019.
- Americas: Deal volumes and values between 2021 and 2022 decreased by 13% and 32%, respectively.
Consumer markets average deal values, 2018-2022
Sources: Refinitiv, Dealogic and PwC analysis
Average deal sizes decreased in 2022 compared to 2021, particularly in the second half of the year, especially among corporates that have been focused on portfolio optimisation and smaller tuck-in acquisitions rather than larger, more transformational deals.
Key themes driving M&A activity in 2023
Refining of business portfolios
We expect that consumer markets operators will continue to review and refine their portfolios in 2023 and focus on using M&A to transform their businesses in order to accelerate the delivery of their strategic objectives and shareholder value. This follows a similar trend in 2022, when large FMCG companies such as Unilever and Kellogg’s announced reorganisations of their businesses to allow them to focus more on specific categories; leading shipping companies added capabilities beyond their core business to enhance their service offering; and pharmaceutical leaders such as GSK and J&J either completed or announced the separation of their consumer health businesses, and others continued to refine their consumer healthcare portfolios.
Lowering risks via smaller deals and structured deals
With macroeconomic conditions still uncertain, consumer sentiment expected to remain subdued and large deal financing difficult, we expect to see private equity funds focus on smaller, bolt-on acquisitions to accelerate value creation in their existing portfolio companies. In addition, we anticipate an increase in structured deals or refinancing exercises in cooperation with corporates or other PEs.
More generally, we also expect smaller deal sizes or more significant post-acquisition disposals as companies attempt to navigate a more challenging regulatory environment and seek to alleviate competition concerns raised by regulators, especially in the United States, which has seen a growing number of antitrust enforcement actions.
Opportunistic dealmaking
With public valuations having reset from recent highs and distress situations emerging through a combination of margin pressures and financing challenges, we expect a rise in opportunistic M&A led by deep-pocketed corporates or PEs with significant dry powder to deploy. Recent examples include:
- Austrian furniture store operator XXXLutz’s announced acquisition of German furniture e-retailer home24, benefiting from a significant decline in its share price since its peak in early 2021
- The proposed acquisition by Naver, a leading search portal in South Korea, of Poshmark, a US-based social e-commerce marketplace company.
We expect highly leveraged corporates will actively pursue divesting non-core assets across their portfolios as a means of strengthening their balance sheets, which will create opportunities for opportunistic buyers as these assets come to market.
Consumer Markets M&A 2023 outlook
2023 will likely remain a challenging year for M&A in consumer markets, given the volatile macroeconomic backdrop. However, portfolio optimisation remains high on CEOs' agendas, and this, combined with the need to transact to accelerate strategic transformation, will drive opportunities for value creation through M&A.
About the data
We have based our commentary on M&A trends on data provided by industry-recognised sources. Specifically, values and volumes referenced in this publication are based on officially announced transactions, excluding rumoured and withdrawn transactions, as provided by Refinitiv as of 31 December 2022 and as accessed on 2 January 2023. This has been supplemented by additional information from Dealogic and our independent research, and includes data derived from data provided under license by Dealogic. Dealogic retains and reserves all rights in such licensed data. Certain adjustments have been made to the source information to align with PwC’s industry mapping. Average deal value is calculated based on announced deals with a disclosed deal value only.
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