3. Sector Report 2012
Contents
Report 2
Introduction 3
Report Highlights 4
Deal Focus by Country
Americas
Brazil 8
Mexico 10
USA 12
Asia, Africa and Middle East
China 14
India 16
Japan 18
Turkey 20
Europe
France 22
Germany 24
Italy 26
The Netherlands 28
Poland 30
Russia 32
Spain 34
United Kingdom 36
Contacts 38
Transactions 40
Consumer Goods - Contents
1
4. Sector Report 2012
p
Report
About the report
This sector report was edited by For more information on this Other sector reports available
Andre Johnston of the Mergers report please contact Andre to download from mergers-
Alliance central team. To compile Johnston, Mergers Alliance alliance.com include:
our findings we conducted Research Manager.
Global Cleantech Report
interviews with our sector experts
from each member firm within the Andre Johnston Global Engineering Review
Mergers Alliance partnership. We Mergers Alliance Global Food & Drink
also surveyed owners and senior +44 207 881 2967
executives within consumer good andrejohnston@mergers-alliance.com European Plastic Packaging
sector organisations and private
equity investors worldwide.
Deal Focus
Within each country’s Deal Focus overview of the consumer goods Key terminology: FMCG (Fast
we review merger and acquisition sector as a whole, highlighting the moving consumer goods)
(M&A) activity, focusing on key market structure as well as CF+T (Cosmetics, fragrances
deals and trends within the commenting on the key trends and toiletries) y-o-y (year on
consumer goods sector with an and the factors influencing M&A. year), CAGR (Compound annual
emphasis on branded goods. growth rate) BRIC (Brazil, China,
We provide our own insight on
India, Russia). All deal values are
We have included tables of how we think the market might
in US dollars unless otherwise
recent transactions where the play out over the coming 18
stated.
target company is located in months and attempt to identify
the country under review. key investment opportunities.
Additionally, we provide an
Disclaimer not be acted on or relied upon or used as a this cannot be guaranteed and neither
basis for any investment or other decision or Mergers Alliance nor any of its member firms
This publication contains general information action that may affect you or your business. or other related entity shall have any liability
and is not intended to be comprehensive nor Before taking any such decision you should to any person or entity which relies on the
to provide financial, investment, legal, tax or consult a suitably qualified professional information contained in this publication,
other professional advice or services. This adviser. Whilst reasonable effort has been including incidental or consequential
publication is not a substitute for such made to ensure the accuracy of the damages arising from errors of omissions.
professional advice or services, and it should information contained in this publication, Any such reliance is solely at the user’s risk.
Consumer Goods - Report
2
5. Sector Report 2012
Introduction
Caution and uncertainty continue to affect the major
economies and depress consumer confidence levels,
especially in the US and Europe. Whilst the consumer
product industry has been particularly exposed to the
prevailing economic conditions we are optimistic that
confidence will improve in 2012, creating new
opportunities across all consumer markets.
As you will see from our report, 2012 and beyond: how emerging seek growth through acquisitions,
mergers and acquisitions (M&A) markets are critical to consumer wish to restructure or realise value
activity in the sector has been product company growth; why in your business, our international
progressively rising since the multi-channel sales strategies are advisors are in a unique position
nadir of the global downturn in driving investment activity and to help you. Our member firms
2009. The report highlights that how companies at the value, have a prominent position in
despite very challenging markets premium and luxury ends of boardrooms across the world and
transactions are being completed consumer markets are benefiting are renowned for delivering an
in many different consumer from those operating in the award-winning partner-led
segments and geographies. middle of the market. Our work advisory service with seamless
In addition a large proportion also highlights the level of private international cooperation.
of these deals are cross-border equity investment in the sector
transactions reflecting the and how mid-cap companies and We hope you find our report
increasingly global characteristics global corporates are shaping enlightening and welcome any
of the sector. their acquisition strategies. feedback on our observations
and conclusions.
Our report also contains a great As the global recovery takes hold,
deal of market-leading insight into we at Mergers Alliance are ideally
the key issues facing the sector in placed to help you. Whether you
Andy Currie
Chairman of Mergers Alliance
Managing Partner of Catalyst Corporate Finance LLP
+ 44 207 881 2960
andycurrie@catalystcf.co.uk
Consumer Goods - Introduction
3
6. Sector Report 2012
p g g
Report Highlights
We at Mergers Alliance believe the main factors
to shape M&A in the consumer goods sector
over the next three years will be:
Consumer confidence
ready to recover
Whilst there remains much uncertainty
in the global economy, the latest
consumer polls indicate that consumer
confidence has reached a plateau
and that tentative signs of a recovery
are emerging (see Figure 1).
Figure 1: Consumer confidence
120
10%
Consumer Confidence
110
Unemployment Rate
100
9%
90
80 8%
70
7%
60
50 6%
40
5%
30
20 4%
10
11
08
07
09
10
07
10
08
08
1
12
9
01
00
20
20
20
20
20
20
20
20
20
20
20
t2
r2
ay
ay
v
g
p
c
ar
b
n
n
n
No
Oc
Ap
De
Au
Se
Fe
Ju
Ja
Ja
M
M
M
United States of America - Consumer Confidence Index
United States of America - Unemployment Rate
We expect this recovery in consumer
confidence, which may be slow initially,
to feed into consumer markets over the
next two years. Consequently this will
further stimulate corporate and
institutional investment and M&A
activity across the consumer goods
sector (see Figure 2).
Figure 2: Total deal volume global
1200
Transaction volume
1000
800
600
400
200
0
2008 2009 2010 2011
Consumer Goods - Report Highlights
4
7. Emerging markets rising
Consumer goods companies have
recognised that emerging markets are
a requisite for growth rather than just
a complementary source of revenue.
We expect this corporate focus to drive
more Western investment into emerging
economies directly through acquisitions
or joint ventures.
Our research shows the rise of
consumer sector M&A in emerging
markets and in particular Asia. Since
2008, the proportion of M&A in these
economies has increased by over a fifth
to represent 30% of all deals globally
(see Figure 3).
Figure 3: Emerging markets
4% 1%
100 Africa and the Middle East
90 Asia Pacific
80 Latin America & Caribbean
M&A Deal Volume
70
60
50
40
30
20
25%
10
0
M&A Volume 2009 M&A Volume 2011
Rest of World
Europe and North America
The deal flow is two way. Indian
consumer companies Godrej and
Gitanjali have been among the ten most
active acquirers globally over the past
three years, having completed 15 deals
between them. As with other BRIC
headquartered multinationals, they have
set ambitious growth plans and have
acquired branded goods companies in
both developed and other developing
countries.
Consumer Goods - Report Highlights
5
8. Sector Report 2012
p g g
Report Highlights
Adoption of multi-channel Private equity continues
sales approach driving its love affair with
M&A consumer brands
Almost all consumer product The private equity industry has an
companies have adopted a multi- established track record of working
channel retail distribution model, which with private businesses to expand the
“
M&A is now one of the
main growth strategies
for consumer
companies domiciled
included high street retail, online, mail
order and television distribution. Online
shopping accounted for the majority of
overall retail sales growth in a number
of developed markets during 2011 and
is set to continue to dominate growth.
distribution of consumer branded
products in most developed countries.
This trend has continued through the
economic downturn although the focus
has moved away from single channel
retail distribution to multi-channel
in mature economies. distributed products.
”
Companies in the US, UK, Germany
and the Netherlands have been Some of the more well known specialist
particularly active in acquiring online sector investors such as L Capital and
businesses and we expect further Change Capital have been active
consolidation to occur across the recently as well as global players like
developed economies. Carlyle Group, Oaktree Capital, Eurazeo
and Blackstone Group.
The Chinese market is forecast to
become the biggest home shopping
market globally – the B2C e-commerce
market growing at 75% CAGR up to High prices paid for
2014. It is inevitable that successful high-end brands
local online businesses will be targets
During the past three years corporate
of both acquisitive overseas and
and private equity activity in the luxury
local buyers.
and premium segment has risen to
reflect the increase in demand for
premium goods from Asia, Russia
Pressure on brands and South America.
has intensified
European luxury brands have been in
Consumers in developed markets have particular demand and commanded
been increasingly focused on price and high prices. The leading French luxury
brand equity. Whilst this has meant conglomerate LVMH has made seven
growth at both the premium end and acquisitions since 2008 including Italian
value end of the branded goods jewellery maker Bulgari. Jimmy Choo,
spectrum, there has been intense the iconic British lifestyle brand, was
competition and margin pressure in acquired for c. $930m by Labelux, the
the middle. Many of these brands have Austrian firm, which includes Bally and
found themselves competing directly Belstaff amongst its portfolio. VF Corp,
against their distribution networks, the leading US branded apparel
which have developed private labels conglomerate, acquired Timberland
offerings – currently growing at 10% for $2.2bn, at a valuation of 12.3x
in the US and 6% in Europe. historic EBITDA.
This has created a number of
‘distressed’ sales and both corporate
and private equity investors such as
Sun Capital have capitalised on these
opportunities. We expect further
distressed opportunities to emerge
in the short term.
Consumer Goods - Report Highlights
6
9. We expect to see the luxury and ceiling in terms of organic growth due
premium brand conglomerates to the mature and consolidated nature
continue to consolidate the market of their respective markets, will be
and provide the best exit route for compelled to pursue globalisation
investors, who would have considered strategies.
an IPO in previous years.
The larger multinationals already have
global sales and distribution operations,
and are generally the first to acquire in
Companies in lower emerging markets however, we expect
growth, mature to see more mid sized businesses
economies need acquire in BRIC countries as the risks
become more understood and the M&A
to acquire
approach more accepted.
M&A is now one of the main growth
strategies for consumer companies
domiciled in mature economies.
Companies that have reached a
Consumer power One billion new middle class consumers
A consumer tidal wave is on its way
in the form of the BRIC countries. 1600 1,350
Whilst the economies in each country
vary significantly, their consumer 1400
markets are characterised by a largely
untapped rural consumer population, 1200
expanding middle classes and the high
income disparities between the rural 1000
and urban populations. It is estimated
China
that one billion more consumers will 800
emerge in less than 15 years.
600
Whilst the consumption of basic goods
such as food, beverages and clothing 250
400
have grown most in line with GDP, the India
consumption mix is changing. Certain
200
sub-sectors, such as skin-care in China
and India and cosmetics and baby Brazil
0 Others
diapers in Brazil, are growing faster
than GDP. As a result, competition Year 2009 Year 2025
for local brands is intensifying and
acquirers are paying high premiums as Source: McKinsey & Company
consolidation takes place. We expect
premiums to remain high as demand
for these brands and companies
exceed supply.
Consumer Goods - Report Highlights
7
10. Brazil A BRIC success The baby diapers segment has
experienced double digit growth over
Brazil’s appeal to investors grows day the past few years - a trend that is
by day and is quickly becoming one expected to continue due to the
of the most appealing of the BRIC’s increasing purchasing power
thanks to its booming economy and of the consumer and relatively
improving business conditions. high birth rates.
Brazilian GDP grew 7.5% in 2010 and
is estimated to expand by 3.4% in
“With the rise 2012, mainly driven by its internal Footwear IPO alerts sellers
market, which benefits from record high
in consumer employment and rising income levels.
Arezzo, Brazil’s leading footwear
company that holds an 11% market
income and This social migration process is
share and operates through franchises
reaching over 30 million people who are
the emergence as well as its own stores, went public in
either joining the consumer base or are
January 2011 raising US$339m. A large
increasing their consumption habits.
of 30 million new chunk of the proceeds (roughly 35%)
The upper, middle and lower-middle will be used to acquire smaller brands.
consumers, the (or A-B-C) income segments now It has been reported that other local
Brazilian consumer represent 74% of the population vs. footwear companies are also currently
49% in 2005 thanks to the sharp seeking acquisitions both domestically
market has attracted increase in lower income consumer and overseas. Expect substantial
spending power. A strong commitment consolidation activity in this sub-sector
global attention. to economic stability, along with a over the next 18 months.
Despite substantial structurally sound financial sector, has
contributed to consumer confidence
consolidation in recent and capital expansion which should
years there are still have a positive effect on general
economic growth.
plenty of M&A
opportunities.”
Population increase
Felipe Monaco, driving diaper market
Broadspan
Multinationals are becoming
increasingly attracted to the baby
diaper segment. In September 2011
personal care giants Svenska Cellulosa
Aktiebolaget (SCA) acquired baby
diapers and wet wipes specialists Strong private equity
Pro Descart Indústria E Comércio involvement
for US$71m.
Private equity involvement in the
Domestic consolidation is also taking Latin American market is becoming
place, in August 2010 multi-billion increasingly evident.
dollar Brazilian conglomerate
Hypermarcas acquired the Brazil based The Carlyle Group looked to expand its
diapers, tissues and feminine care consumer portfolio by acquiring a 51%
producer Mabesa from Grupo PI Mabe stake in Scalina, Brazil’s largest
in a US$195m transaction which manufacturer and retailer of women’s
represented an estimated 8.5 x EV hosiery and lingerie, for approximately
to EBITDA ratio. Hypermarcas also US$160m. In the last five years, the
acquired two other leading diaper Brazilian lingerie market has outpaced
Brazilian companies (Pom Pom in GDP growth by circa 100%; a figure
November 2009 for US$173m and that can be attributed to the
Sapeka in March 2010 for US$211m) proliferation of the middle class and
establishing its national leadership with the rising number of women with
a 35% market share. expendable incomes.
Deal Focus - Brazil
8
11. Indeed, women are quickly becoming Due to the highly fragmented nature of
a major economic force and are the apparel market in particular (the top
expected to have a profound effect five players hold just 16% of the total
on consumption habits. The cosmetics, market share) we expect the growing
fragrances and toiletries (CF&T), eagerness to buy brands rather than
footwear and apparel segments generic to drive M&A directed at
are all expected to be boosted. emerging Brazilian clothing brands.
Closer to home, in May 2011, Latin
American private equity fund Southern
Cross acquired a controlling stake in E-commerce maturing
Brinox, a kitchenware manufacturer Local consumer firms that have
with revenues of US$80m in 2010. traditionally sold their brands in retail
Apart from the major players, the stores are expanding into e-commerce,
kitchenware market is highly a channel growing at over 30% per
fragmented and Southern Cross hopes annum. Consequently, we anticipate
to benefit by continuing its buy and moves by consumer firms looking to
build strategy - acquiring other expand their distribution network to
associated brands through Brinox. acquire domestically domiciled online
retail specialists.
Overall, the Brazilian consumer market
Consumers switching has experienced a boom in recent
to brands years, however several inefficiencies
still exist, such as fragmented markets.
Although Brazil is becoming This should nonetheless encourage
increasingly prosperous, the consumer major consumer players, foreign
base is still composed of mostly lower and domestic, that have their own
to middle income consumers; distribution channels and that
consequently pricing is still central to rely on economies of scale.
consumer choice. However, branding
has been gaining traction over the past
several years with shoppers becoming
more willing to spend that extra amount
on quality branded products.
Recent transactions M&A activity
12 120
Date Target Description Acquirer Deal Value
(US$m)
100
Average deal value $m
Feb 12 Natura Cosmetics Lazard Asset n/d
10
Transaction volume
Cosméticos S.A. Management LLC (USA)
8 80
Oct 11 Bobstore Apparel InBrands 32
Sep 11 Descart Indústria Baby diapers Svenska Cellulosa 71 6 60
E Comércio Aktiebolaget (Sweden)
May 11 Brinox Kitchenware Southern Cross n/d 4 40
Metalúrgica Group (Argentina)
May 11 Ecologie/ Cosmetics Bombril 9 2 20
Nick&Vick
Feb 11 VR Kidswear Apparel InBrands n/d 0 0
and VR Menswear 2008 2009 2010 2011
Jan 11 Perfex (Johnson Household Hypermarcas 17
& Johnson) cleaning
Total deal volume
Nov 10 Colgate-Palmolive, Soap Hypermarcas 50
Source: Capital IQ and
Pom Pom Soap
Mergers Alliance Analysis Average deal value $m
Nov 10 Scalina Hosiery; lingerie The Carlyle Group 160
(USA)
Aug 10 Mabesa do Diapers Hypermarcas 195
Brasil
Deal Focus - Brazil
9
12. Mexico Sound fundamentals Brand integration
The Mexican consumer goods sector An increasingly common theme in
swept through the global economic Mexican consumer oriented M&A
downturn unimpeded, experiencing has been for diversified consumer
6% compound annual growth over the companies to buy smaller brands
past three years. to then incorporate into their
product lines.
Consumer growth is expected to at
least equal GDP growth which is In October 2010, Genomma Lab
“The currently at 4%. Indeed, a rising middle Internacional SAB, a Mexico based
class may push growth in consumer developer and marketer of over-the-
development goods higher still. Other positive indices counter pharmaceutical and personal
priority of include a relatively low inflation rate care products, agreed to acquire the
(at 3.14%) and stable consumer Pomada de la Campana, Galaflex,
many firms has confidence levels. Moreover, Affair, Vanart and Sante Haircare brands
consumer credit is recovering after for a total consideration of US$85m.
been outward of late to a sharp contraction in 2009 and is The brands, that reported combined
take advantage of the expected to reach 2007 levels in 2012. annual sales of US$38m in 2009, will be
incorporated into Genomma’s already
rapidly growing middle Overall deal volume in consumer goods extensive portfolio of over 90 brands
has traditionally been low relative to the
class. Solid macro general market; however, it has been
fundamentals along steadily rising since 2009.
Largest luxury market
with the increase in in Latin America
consumer credit, rolled Multinationals investing The luxury goods market is the second
in Mexico most important in Mexico after the
out by both department mass segment. Indeed, Mexico rates
Large multinationals have sought to above Argentina and Brazil with 55% of
and specialist stores, capitalise on concentrated sector the total sales of luxury goods in Latin
has led to a surge in growth. One such firm was Svenska America. According to AC Nielsen,
Cellulosa Aktiebolaget, the Swedish 6,4 million Mexicans will have annual
Mexican consumerism. consumer goods giant and owner of incomes of over US$60,000 by 2030.
brands such as Bodyform and Tempo.
With this, Mexico In July 2010 it agreed to acquire
A number of major international luxury
brands rely on the affluent Mexican
remains one of the Copamex S.A, a baby diaper business consumer as much as they do the
that targets the Mexican and Central European. Hugo Boss for example
more attractive American market, for US$50m. The derives c. 15% of its global sales
deal involves the rights to the brands
emerging market Tessy Babies and Dry Kids among
from Mexico.
propositions.” others and will take advantage of the
growing Mexican and Central American
Christian Garcini Garcia, baby diaper market. Apparel acquisition
Sinergia Capital opportunities
We expect the trend of Mexican brands
being bought with the intention of being
integrated into the buying company’s
product line to continue. We expect this
trend to take place in the apparel sector
in particular, where a number of
successful local brands have
emerged. These include:
Deal Focus - Mexico
10
13. Julio: Quality clothing at low prices.
It currently has 48 stores and 15
franchises in Mexico.
Ivonne: The brand has positioned
itself as one of the leading
companies in selling fashion and
“ The luxury goods
market is the second
most important in
Mexico after the mass
accessories to a wide segment of segment. Indeed,
the female population. Has recently
opened its first stores in the US. Mexico rates above
Marsel: It currently has 20 stores Argentina and Brazil
in shopping malls across the
country, Marsel has been
with 55% of the
expanding at a fast pace. total sales of luxury
Highlife: Clothing for men; one of goods in Latin
the market leaders in the sector.
America.
Andrea: Catalogue sales of shoes
with a large share of the Mexican
market.
In our view the above present a good
opportunity for foreign firms looking to
invest in the infrastructure of some well
”
established and potentially high growth
Mexican brands.
Recent transactions M&A activity
7 120
Date Target Description Acquirer Deal Value
(US$m) 90
6
Average deal value $m
Oct 11 Scientific-Atlanta Set-top boxes PCE Paragon 45 80
Transaction volume
de Mexico Solutions kft (Hungary) 5 70
Aug 11 Moda Holding Footwear Nexxus Capital, n/d
60
S.A.P.I. de C.V. S.C. developer 4
Aug 11 Various Brands Various brands Genomma Lab 85 50
Internacional SAB 3 40
Jul 11 Toshiba Electronics Just International n/d 2 30
Electromex Ltd. (Taiwan)
20
Oct 10 Colgate-Palmolive Personal care Genomma Lab 29 1
(Mexican brands) Interacional SAB 10
Jul 10 Copamex, S.A. Personal care Svenska Cellulosa 50 0 0
de C.V. Aktiebolaget (Sweden) 2008 2009 2010 2011
Mar 10 Laboratorios KSK Natural products Takashi Tsuru n/d
company Kayaba
Total deal volume
Mar 10 Impco, S. de Household Sylvan Holdings n/d
Source: Capital IQ and
R.L. de C.V. appliances Pte. Ltd (Singapore)
Mergers Alliance Analysis Average deal value $m
Jan 09 Iconix Brand Various brands New Brands 6
Group, Inc Americas LLC (USA)
Aug 08 Barajas y Naipes Leisure equipment Cartamundi NV; n/d
de Mexico Copag da Amazônia S.A.
Deal Focus - Mexico
11
14. USA Strategies change on remained relatively constant since
2008 through the end of 2011
macro deterioration at approximately 200 reported
As goes the consumer so goes the transactions per annum. While most of
consumer products industry and the the deals had undisclosed value and
consumers throughout the world are terms, the ones that did disclose
still recovering from the local and global exhibited an increased average
recession and personal deleveraging. transaction size from a low in 2008
through 2010. This increase in the
The US consumers buying behaviour average deal size was reflective of the
“The US has fundamentally changed from the financial turmoil in 2008 in which many
consumer mid-2000’s and consumer goods of the sellers were "distressed" and
manufacturers and the retail channels buyers had limited sources of capital.
products M&A will continue to have to adjust to this Average deal size spiked in 2010 as
new buying paradigm.
activity has there were five US$1bn+ transactions
The continued contraction of credit including NBTY and Alberto-Culver for
proven to be rather availability to the consumer (be it from US$4bn each, whereas the largest
disclosed deal in 2008 was only
resilient in this volatile credit cards, home equity loans, 401k)
US$500m.
combined with declining assets,
environment. Given dropping consumer confidence and Approximately 13% of the companies
increased unemployment, has made
the strong corporate the US consumer more price sensitive,
acquired in the US have been bought
by a non-US based entity. In 2011,
balance sheets, and decrease discretionary spending and there was an increase in cross-border
become more willing to consider transactions which was driven by the
backlog of aging alternative channels for key purchases. weak dollar and a desire for European
owners of privately-held The consumer goods manufacturers and Chinese companies seeking
have also faced a dramatically "foothold" acquisitions in the US.
CP companies, we are changing environment in the US.
bracing for a strong Rising inflation on the back of monetary
stimulus has meant that companies Large deals and hostile
surge of M&A activity have faced rising commodity prices takeovers
over the next few years.” while at the same time being pressured
VF Corp, one of the leading owners
to maintain, if not lower, its retail
pricing. Many branded companies of branded apparel companies, added
Brian Mulvaney,
faced new competition from private Timberland to its portfolio in June 2011
Headwaters MB in a US$2.2bn deal. This valuation was
label offerings. In addition, companies
remain challenged by tight credit a 40% premium to Timberlands recent
markets, a volatile dollar and increasing stock price, 1.2 x revenue and 12.3 x
employee benefit costs. EBITDA.
Timberland, which was publicly traded
but family managed, had suffered a
decline in profitability and was facing
investor criticism. By being acquired by
VF, Timberland’s cost structure should
improve and sales will benefit from VF’s
global distribution network. VF, which
owns such brands as Vans, North Face,
JanSport, Reef, Wrangler and Lee has
stated that it will continue to look to
build its brand portfolio in all of its
categories both in the US and
overseas.
Stable M&A levels
Despite volatile economic conditions
affecting the consumer space, the
annual number of transactions has
Deal Focus - USA
12
15. M&A driving company and direct response (e.g. infomercials grow, but brands that fall in the middle
and direct mailers) continue to take a with medium quality at full prices will
growth larger share of the consumer’s wallet, continue to decline.
The US consumer goods market is which has required the consumer
goods manufacturers to develop Lastly, US companies will have to
comprised of over 7,500 companies of
multi-channel strategies. develop ways in which to enter the
which only 330 are publicly traded and
higher growth emerging markets such
just over 1,000 are private equity
Indeed, in order to compete, many as Brazil and China in order to fuel
backed. Of this group, 350 companies
companies are challenging their growth and to establish sourcing and
disclosed revenue that totalled
traditional business models in order manufacturing internationally in order
US$323bn, lead by Procter & Gamble
to deliver a better experience to the to lower costs and increase capacity.
(P&G) with US$79bn and the next nine
consumer. Some of these changes
accounting for US$114bn. While the larger companies already
include brand building using social
media, creating exclusive product have global sales and distribution
Of note, the industry growth of the top
features for retailers, changing networks, many of the mid-size
companies has been nominal with the
warranty/return policies, willingness to companies (e.g. sales of $50-500
top 10 companies only growing 0.6%
offer private label products, entering million) do not. In order to mitigate
in three years and 2.2% in five years,
new countries and use of alternative the risk of these new market launches,
whereas the top 50 companies have
channels such as direct-to-consumer, US companies are becoming more
grown 1.5% in three years and 4.6% in
multi-level marketing and receptive to joint ventures, acquisitions
five years. The highest growth category
discount chains. or distribution agreements with
in the top 50 was apparel, with PVH
companies either domiciled or
(Calvin Klein, Tommy Hilfiger) growing
established in those target markets.
88% in five years through acquisitions.
As has been the case over the last few
Most of the other top 50 companies New strategies and years, this continual need for changing
experienced low or no organic growth
new markets strategies will drive M&A activity in the
and the few that did have some growth
US and internationally.
were primarily driven by acquisitions Over the next few years the US
(e.g. Jarden). consumer goods market is expected
to remain at the low-single digit growth
rate, but will have more dramatic
Changing shape of the changes within the different consumer
sectors and distribution channels.
consumer industry
We expect to see growth at both ends
The retail distribution channels have
of the branded goods spectrum and a
evolved quite significantly over the past
decline in the middle. Meaning that
five years. The “bricks & mortar” stores
high-end brands like Nike and Coach
that are doing well are the luxury
and value brands like Costco’s Kirkland
retailers and the discount retailers.
and Target’s Cherokee will continue to
Non-traditional channels such as online
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 300 300
(US$m)
250 250
Average deal value $m
Dec 11 Kukdong Apparel Apparel Kukdong Corp. 11
Transaction volume
(America) Inc.
200 200
Dec 11 Baby Trend, Inc. Juvenile products GIA Investments 45
Corp.
Sep 11 JAKKS Pacific Toys Oaktree Capital 608 150 150
Jun 11 Timberland Co. Apparel & V.F. Corp. 2,200 100 100
footwear
May 11 Acushnet Recreational FILA (Korea) 1,200 50 50
Company (Titleist) equipment
May 11 Volcom Apparel PPR SA (France) 607 0 0
2008 2009 2010 2011
Jan 11 Rafaella Apparel Apparel Perry Ellis 195
Total deal volume
Jan 11 Klipsch Group Consumer Audiovox 232
Source: Capital IQ and
electronics
Mergers Alliance Analysis Average deal value $m
Dec 10 Sara Lee Shoe Household SC Johnson 323
Care (Kiwi brand) products
Sep 10 Alberto-Culver Personal care The Carlyle Group 3,900
products
Deal Focus - USA
13
16. China Steady shift to a more Indeed, the past three years has
seen M&A targeted at home appliance
consumer driven economy electronics firms gather pace; further
The Chinese consumer class, riding on deals included the purchase of
the wave of constant macroeconomic Shenzhen based United Opto-
growth, has been expanding at a Electronics, a firm engaged in the
rapid rate. design and manufacturing of projection
televisions and related products, by
Just seven years ago 4.2 million keypad specialists Karce International
households were earning US$10,000 Holdings for US$346m and the majority
“China is the a year, that household figure has since stake purchase of Hefei Royalstar
most significant risen to just over 20 million and rising. Industrial, by its domestic peer Wuxi
Despite this, consumption still only Little Swan for US$78m.
prize in the makes up 35% of GDP compared
to 70% in the US. It is clear that the
consumer consumption capacity of the Chinese
Homegrown brands take
goods sector. The has not come close to realising its
to the world stage
full potential. Indeed, analysts expect
middle-class in China China’s consumer market to grow to
China is home to a number of
three times the size of the US market
is increasingly becoming over the next two decades.
multibillion dollar brands, some of
which have had more exposure to
a wealthy one with a China’s 12th five year plan, which runs Western markets than others.
growing appetite for until 2015, places an emphasis on The brands range from electronics
balancing the economy to be more to sporting goods and top among them
consumer goods. higher-value-add consumer driven is multinational computer firm Levono.
and less reliant on cheap exports. The company manufactures and
Companies, both Even with this, China will remain a markets desktop, tablet and notebook
domestic and foreign, relatively frugal state relative to its computers. Currently the world's
western counterparts and saving will number two PC brand, the company
will vie for market remain firmly entrenched in the culture; has already been active in global M&A
with its acquisition of IBM’s personal
share through M&A.” an economic dynamic that can only
computer division in 2005 being its
prove supportive to the long term
health of the economy. most high-profile deal. Looking ahead
Andre Johnston,
it recently stated that it is looking for
Mergers Alliance overseas acquisitions to expand its
nascent mobile device division.
Large interest in home
appliances The next two biggest non food and
drink consumer companies are Anta
China has been a fairly active hub of and Li-Ning, both sporting goods
consumer goods M&A in recent years firms that design sports apparel and
and although there was a contraction equipment under their own brand
in 2010, 2011 surpassed the peaks names. Li-Ning surpassed Adidas
in both volume and average deal domestically in 2009 to become the
value. Interestingly, over half of all second largest sports brand by market
transactions over the past three years share (after Nike). In the same year it
have been cross-border. bought Hong Kong based sportswear
Recent among them was renowned firm Kason Sports for US$24m. Anta
Swedish outdoor recreational brand meanwhile has ambitiously declared its
Hestra-Handsken’s acquisition of a intention to open 10,000 new stores
50% stake in outdoor sportswear and across China.
equipment firm Zhejiang Pinghu
Huashen in February 2011 for an
undisclosed sum. In the same month
French electrical appliances company
SEB Internationale acquired a 20%
stake in kitchenware appliances brand
Zhejiang Supor for US$526m.
Deal Focus - China
14
17. Personal care opens Interestingly, there has been notable Monetary policy could
outbound involvement as well; China
its borders Investment Corporation invested
influence M&A
Due to its substantial growth prospects US$50m into French beauty and home If the Chinese government stops
one industry that has been more active products firm L'Occitane International artificially suppressing its currency and
than most in M&A has been the CF&T during its floatation. allows the RNB to float freely (which
(cosmetics, fragrances and toiletries) may happen sooner than anticipated
segment. due to domestic inflation concerns) the
In December 2010 Coty Inc, the world’s
Luxury sensibilities consumer’s purchasing power will rise
sharply. Not only will this enable the
largest fragrance company By 2015 China is set to overtake the Chinese to outbid foreign consumers
headquartered in Paris and New York US and Japan to become the world’s on products they themselves make,
and privately owned by German holding largest luxury market. Heavy tariffs it will also provide Chinese firms with
company Joh. A. Benckiser, acquired a levied on certain consumer goods such the additional purchasing power to
majority stake in TJoy Holdings, a as a 50% duty on cosmetics and a participate in outbound M&A more
Jiangsu Province based brand that 30% duty on high-end watches are to aggressively.
manufactures skin care products, for be repealed with further reductions on
US$400m. Although Tjoy has negligible import tariffs to follow. Such a move
market share (estimated at 1%) Coty may actually discourage China targeted
was attracted to one of the Chinese M&A by foreign luxury companies as
firm's lucrative skin whitening and male home advantage no longer becomes a
skincare products lines. These products prerequisite to penetrating the market.
have been experiencing high double
digit growth in recent years. Currently, only a small fraction of the
population can afford premium goods,
In 2008 Johnson & Johnson China most of whom are confined to the
Investment Co, a subsidiary of New major cities, however, prosperity
Jersey based Johnson & Johnson, and goods are now swelling into
bought Beijing Dabao Cosmetics, one the second and third tier cities.
of China’s best known cosmetic brands
(the firm had previously been majority
state owned). The purchase has so far
facilitated Johnson & Johnson’s entry
into the Chinese market through
Dabao’s 3,000 mainland outlets.
Recent transactions M&A activity
60 60
Date Target Description Acquirer Deal Value
(US$m)
50
Average deal value $m
Dec 11 Shanghai Watches Watches Shenzhen Fiyta 7
50
Transaction volume
Company Limited Holdings Ltd
40 40
Dec 11 Shenzhen Consumer Sichuan Changhong 32
Changhong electronics Electronics Group
Nov 11 Yiwu Nengdali Apparel China Fashion n/d 30 30
Garments Co.,Ltd. Holdings Ltd.
Aug 11 Parel Cosmetics Ming Fai Holdings 5 20 20
Cosmetics Ltd. Limited
Aug 11 BSW Household Electornics Bosch and Siemens 19 10 10
Appliances Home Appliances (Ger)
Aug 11 FAB Enterprise Electronics Wizzard Software 15 0 0
2008 2009 2010 2011
Mar 11 Zhejiang Putian Household Elica SpA (Italy) 42
Electric appliances
Total deal volume
Feb 11 Zhejiang Supor Housewares and SEB SA (France) 526
Source: Capital IQ and
specialties
Mergers Alliance Analysis Average deal value $m
Feb 11 Zhejiang Pinghu Sportswear and Hestra-Handsken n/d
Huashen equipment AB (Sweden)
Apr 08 United Opto- Electronics Karce International 346
Electronics Holdings
Deal Focus - China
15
18. India Growing middle class Foreign private equity
boosts M&A interest in Indian apparel
India is one the world’s most lucrative Disposable income in India is growing
consumer markets and there is still at 5% annually; yearly growth of the
ample room for expansion in a country apparel sector however is c. 13%. This
where, similar to China, consumption figure can be partly attributed to more
makes up less than half of the total money being in the hands of young
GDP. people and an increase in demand for
“Consumer A number of multinational consumer
office wear by both men and women.
companies giants have had a presence in India for The past three years have seen the
decades: Unilever initially entered the growth in apparel reflected in the M&A
have often Indian market in 1930 and Procter & market where many of the consumer
Gamble commenced its first operations transactions took place.
struggled to in the 1950’s.
A number of financial funds competed
penetrate the disparate M&A participation in the sector to invest in Genesis Colors, a company
and often volatile although always evident, has increased that owns a variety of premium fashion
over the past five years thanks to labels. Investors included L Capital,
Indian market as favourable consumer drivers including the private equity arm of luxury
high GDP growth, a growing middle conglomerate LVMH, who recently
modern retail chains class (which is expected to swell to acquired a 40% stake. Previously, UK
are relatively weak and around 500 million by 2025) and a based Henderson Global Investors
rise in per capita income for rural acquired a 12% stake for US$17m and
the majority of inhabitants. US based venture capital firms Sequoia
consumer goods are Capital and Mayfield Fund contributed
US$26m. The new funds have been
sold in traditional High valuations in used to open new branches, market
one of its flagship brands, Satya Paul,
shops. Entering these personal care and fund future acquisitions.
markets requires India’s personal care market is growing
In 2010 private equity firms Bain
rapidly thanks to the rise in the
powerful independent population’s purchasing power and
Capital and TPG Capital purchased
undisclosed stakes in Indian kids-wear
distribution networks, increasing health awareness. The sector
firm Lilliput for US$86m. The new
has attracted many overseas cash rich
funds will allow one of India’s most
therefore, most would buyers. Unfortunately, the number
recognisable kids-wear brands to
of brands for sale has not satisfied
be better off acquiring demand which has contributed to
extend its product range as well as its
store footprint. The deal is also seen as
or partnering with local the high multiples being paid.
a precursor to its initial share offering
that is said to be taking place over the
established brands.” This was illustrated by the bidding
next 12 months.
war, involving both multinational and
Sujay Kotak, domestic players, for Paras
Singhi Advisors Pharmaceuticals, a household and
personal care company. The auction Seeking global coverage
was eventually won by UK based
Reckitt Benckiser who bid a sizable A growing number of Indian firms are
US$725m (price/sales multiple of over seeking international exposure to both
8 x). Reckitt is the world's largest hedge against domestic competition
producer of personal and household and to capitalise on some of the
products boasting global brands such lucrative diaspora market. Historically,
as Durex and Vanish. As well as Indian firms have sold identical product
extending these brands already lines in the targeted overseas markets
discernable presence in India, the to the ones sold locally, however, firms
acquisition will allow Reckitt to expand are now customising their brand
its product line through Paras’ own portfolio to better suit the tastes of
extensive portfolio which includes international consumers. M&A has
brands such as D’Cold, Moor and helped facilitate the cross-over and one
Dermicool. such example was the acquisition of
UK based CF&T company Keyline
Deal Focus - India
16
19. Brands by Godrej Consumer Products, Industry insight India and through our global operations.
the consumer division of the Indian On top of that, we expect a 10%
conglomerate. The buy enabled Godrej Name: Vivek Gambhir compounded annual growth rate from
to introduce new product ranges to the Company: Godrej Group acquisitions. This would be financed by
UK and Europe as well bring Keyline’s Position: Chief Strategy Officer the surpluses generated each year and
brands to the Indian market. Indeed, by maintaining a debt equity ratio of
Godrej has been one of the world’s about 1:1.
most acquisitive consumer companies
over the past three years. A trend that 10 times in 10 years is a compounded
we expect to continue as firms in annual growth rate of about 27%,
emerging markets go out of their which we fully expect to achieve.
way to achieve global coverage. Ultimately our growth aspirations are
indicative of the Indian consumer
market as a whole.”
Outlook The Godrej Group is an Indian
conglomerate headquartered in
The majority of the rural population will Mumbai, India and has a turnover
emerge from subsistence consumption of US$2.6bn. Godrej Consumer
“At Godrej Consumer Products we
to a level that consistently consumes Products is a leader among India's
have a financial goal of what we call
tailored, though still affordable, FMCG companies, with leading
10x10, which essentially means 10
products. The market potential in terms household and personal care
times the size in 10 years. We expect
of volume for mass premium products products.
to grow organically by around 15-
and FMCG’s is considerable. We
20% over the next 10 years both in
believe this holds true for products
in beauty and skin care products in
particular and this is where we expect
further M&A activity to take place over
the next three years.
Despite its eclectic language structure
and vast landmass, the current Indian
consumer climate is relatively
homogenous. Nonetheless, a rise in
purchasing power and an increase in
scale will necessitate more complex
business models with regards to
branding and general operations.
An effort than can be facilitated by
foreign expertise.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 35 100
(US$m) 90
30
Average deal value $m
Sep 11 Genesis Colors Apparel L Capital, Henderson 43 80
Transaction volume
Mayfield (Various) 25 70
Jun 11 Darling Group Hair care Godrej Consumer 100
20 60
Holdings Products Ltd.
50
Apr 11 Henkel India Ltd. Fabric care Jyothy 170
Laboratories Ltd. 15 40
Apr 11 Weekender Apparels for Madhusudan 21 10 30
Clothing children Securities (Vietnam)
20
Jan 11 Maya Appliances Household Koninklijke Philips n/d 5
Industry appliances Electronics (Egypt) 10
Dec 10 Naturesse Hair care Godrej Consumer n/d 0 0
Consumer Care Products 2008 2009 2010 2011
Dec 10 Paras Healthcare Reckitt Benckiser 725
Pharmaceuticals (UK)
Total deal volume
Dec 10 Essence Consumer Fabric care Godrej Consumer n/d
Source: Capital IQ and
Care Products Products
Mergers Alliance Analysis Average deal value $m
Dec 10 Bachi Shoes Footwear Tata International 26
India Private
Sep 10 Lilliput Kids apparel Bain Capital, 86
TPG Capital (USA)
Deal Focus - India
17
20. p
Japan Factors determining M&A as deal value plunged briefly once
again reflecting the uncertainty
Major economic drivers of M&A in surrounding the after-effects of the
the consumer goods sector in Japan earthquake. In 2011, Japanese
include demographics, deflation and corporations turned to outbound M&A
the strong yen to name a few. as a risk diversification measure and to
According to the 2010 census, the take advantage of the strengthening
population of Japan in 2010 was 128 yen against major foreign currencies.
million, virtually the same as in 2005.
“The flat The percentage of the population aged
65 and over reached 23%, the highest Reorganisation of Japanese
Japanese in the world, followed by Germany and electronics takes place
population Italy at 20%. Mature and shrinking
The much predicted reorganisation of
markets in Japan have led to
growth and consolidation among domestic Japan’s consumer electronics industry
consumer goods companies. Deflation was realised in 2008 with the start of
shrinking consumer in Japan has created price competition the acquisition of Sanyo Electric by
goods market in Japan putting pressure on margins, further Panasonic Corporation.
forcing players to consolidate to find The initial 50.2% stake in the listed
is underpinning M&A cost synergies. The strong yen has also Sanyo Electric amounted to over
activity in this sector. levelled the domestic playing field US$12bn. With major electric
attracting foreign global players to the companies like Hitachi, Toshiba and
We expect to see more market. Global consumer brands such Mitsubishi surging domestically, Sanyo
as H&M and Zara in apparel and Ikea
consolidation of in furniture have been successful
could not compete by itself in many of
its product areas. In 2011, Haier Group
marginal local in Japan. Company of China, acquired nine
subsidiaries of Sanyo which mainly
consumer products At the same time these factors have
produced washing machines and
also been drivers for outbound M&A
companies along with as Japanese consumer companies refrigerators in Japan and Asia.
seek faster growing markets abroad.
MBOs and private M&A was not limited to domestic
players seeking consolidation. In 2008,
equity investment, while Bain Capital saw a brand enhancing
Great East Japan opportunity in the Japanese audio
the stronger companies
earthquake impacts M&A electronics market by acquiring the
look abroad to the Tokyo Stock Exchange listed D&M
Prior to the impact of the Lehman Holdings for US$686m. Bain purchased
higher growth markets shock, Japan saw a number of major the stakes of RHJ International and
mid and large-sized consumer deals. Phillips and D&M was delisted from
in the BRICs, South Panasonic acquired Sanyo electric in a the stock exchange. D&M holds audio
East Asia and Africa.” deal worth US$12bn. Moreover, foreign electronic brands such as Denon,
buyers made selective acquisitions Marantz, and McIntosh.
Tomoki Tanaka, such as Newell Rubbermaids purchase
IBS Yamaichi Securities Co Ltd of the baby stroller company Aprica. In
2009 consumer sector deals declined
Strong yen driving foreign
on the back of the market uncertainty
following the global credit crunch. expansion
In 2010 deal volumes and values Given the strong yen and healthy cash
quickly rebounded from a realisation balances, Japanese corporations are
that the consumer market was relatively increasingly seeking M&A opportunities
unaffected compared to other in growing markets outside Japan to
developed economies. However, this build up existing overseas networks in
changed dramatically in March 2011 Europe and North America and diversify
with the Great East Japan earthquake their brand offerings.
Deal Focus - Japan
18
