In the consumer goods and retail space, dealmakers can expect to see more grocery and food M&A, says Leanne Sardiga, PwC partner and head of its U.S. retail and consumer deals practice.

“You continue to see larger corporations prune things and acquire others,” Sardiga says. The trend is exemplified by several recent transactions, including TPG Capital’s February purchase of Arden Group Inc., for $394 million. Arden owns Gelson’s markets, a chain of grocery stores in Southern California. In November, Yucaipa won approval to buy Fresh & Easy Neighborhood Market Inc. after the grocer filed for bankruptcy protection to facilitate a sale. And in December, Back to Nature Foods Co. LLC bought the SnackWells cookies and snacks business. Sardiga says dealmakers may start to see corporates making acquisitions in the grocery space.

What are some of the M&A trends in the consumer goods and retail space?

If I think about private equity, we are seeing continued interest in retail and restaurants. Some of what we’re seeing is deals on both sides of the size spectrum. Some of the larger deals of 2013 were backed by private equity, but we are also seeing in today’s competitive environment more of those private equity firms investing earlier and in a non-controlling way. That is a way of having a more differentiated value proposition. Some of the larger deals were not just typical take-private transactions.

What subsectors of the retail space are attracting dealmaker interest?

We’ve historically seen the retail side be very attractive to private equity firms. One of the interesting things that I see is more corporate activity in that area. Grocery is an area where we’ve seen much more active interest from corporate clients. In today’s environment, where you have a consumer expectation of anything, anywhere, anytime, we are seeing retailers, who traditionally grew organically, make acquisitions in the technology and distribution channels, such as e-commerce sites. There is increased activity from the corporate side because the degree of change is increasing, and M&A is a way they can more quickly adapt to today’s consumer demands. On the retail side, we’ve seen a fair level of activity around grocery. We see that moving to growth in the higher end and in the value end. I think we’ll see more M&A from companies that are more positioned in the middle.

Are there any subsectors on the consumer side that are ripe for M&A?

On the consumer side I think we will see M&A in the food space. It’s one of those spaces that is continually a strong subsector of M&A activity and is relatively resilient to economic cycles. You continue to see larger corporations prune things and acquire others. Then other corporates can buy them up, or private equity firms can refocus those brands and provide more attention that they would not have gotten in a larger corporation. You see that cycle over and over again in the food space – you can always count on a certain level of divestment.

Companies are continually looking at what their competitive strengths are, and divesting those assets that are no longer aligned. I continue to see M&A as a way to actively make some of those changes. The level of deal flow in that space has been a little bit choppy. Some of that is because people are looking to make acquisitions, but there are not necessarily the quality businesses in the middle-market space.

What types of food companies will attract buyers?

I think you will continue to see better-for-you food being of interest. I think that same corollary applies to the restaurant trend. There are a number of concepts for fast-casual and healthier-for-you-type foods. Those could be different Mediterranean food or wraps and things like that.

Is there anything dealmakers in this sector have been doing differently?

Alongside the divestitures, sellers are much more prepared ahead of the sale process. They have been hiring firms to scrub the business ahead of the diligence. One of the things that does is keep a larger number of buyers in the process longer. It also has the buyers bidding around a more consistent set of financials.

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