Dealmakers expect M&A activity in consumer goods and retail to increase, especially in the short term, according to Mergers & Acquisitions’ Mid-Market Pulse (MMP). The MMP is a forward-looking sentiment indicator, published in partnership with CT, a provider of business compliance and deal support services. (Read the full report).
Survey participants polled in October gave the consumer goods and retail sector a score of 74.1 for the three-month outlook and 70.2 for the 12-month outlook, significantly outpacing the scores for overall M&A in the same timeframes, which were 59.4 and 66.2 respectively.
Shopping habits have been changing in significant ways, such as moving more activity online. Strategic buyers and private equity firms are investing in providers of data and analytics designed to help retailers figure out what’s working and what isn’t. Blackstone Group LP (NYSE: BX) and New Mountain Capital invested $570 million in JDA Software Group Inc., which develops software that allows retailers to manage inventory and logistics based on sales, consumer demand and future forecasts.
Another trend is the shift in spending from the accumulation of goods to experiences, such as travel, entertainment and food. Restaurants embracing the “fast casual” and “polished casual” concepts have received a lot of recent interest from private equity firms, including General Atlantic, which took a minority stake in Joe & the Juice, and Roark Capital which took a majority stake in Jimmy John’s Sandwiches.
Many consumer goods companies have been buying and selling slow-growing product lines to focus on fast-growing brands. For example, Newell Brands Inc. (NYSE: NWL) is selling 10 percent of its portfolio. In October, Newell agreed to sell its tool business, including the popular Irwin brand, to Stanley Black & Decker Inc. (NYSE: SWK) for $1.95 billion.
More trends that bode well for M&A in the sector include historically high consumer confidence and retailers’ predictions for a strong holiday season.