Revival of M&A expected in retail & consumer market

‘Over the past two years, M&A transactions were hindered by macroeconomic factors, financing challenges, and a persistent valuation gap between sellers and buyers', says Berco van Echtelt, Consumer Markets Deals Leader at PwC Netherlands. ‘Nevertheless, the Dutch deals market in the mid-market segment remained resilient, with successful transactions, especially for companies with strong balance sheets and synergistic potential. We anticipate more consolidation and diversification deals from companies looking to transform their business models, acquire new capabilities, or enter new markets'.

‘Additionally, the decrease in M&A activity in previous years has led to pent-up demand and an accumulation of assets that companies and investment funds want to divest. With significant funds raised by investment funds in recent periods, there is a strong urge to engage in transactions. We therefore see a strong desire to pursue transactions, both from sellers and buyers, and anticipate a revival of transactions, including large-scale ones. A complete recovery of M&A activity in the consumer market is expected in the medium to long term.’ 

• The dynamics of the COVID-19 pandemic have led to a redefinition of market demand and supply, with companies with strong positioning, the right sales channels, and adaptive supply chains distinguishing themselves as strong players. These companies are now particularly sought after as acquisition targets, offering opportunities for both strategic buyers and investors looking for companies with proven resilience and growth potential. At the same time, the expected increase in transactions with companies experiencing financial challenges opens up new opportunities for restructuring and acquisitions, where buyers can create value through strategic turnarounds and integrations.
• Despite the pressure that inflation and higher cost of living exert on consumer spending and on the margins of retailers and manufacturers, opportunities arise for companies that can increase their efficiency and save costs without compromising the quality of their products and services. This situation stimulates innovation and can lead to stronger, more customer-centric business models capable of thriving in a changing economic environment.
• The increasing emphasis on sustainability is a powerful driver of innovation within the consumer market. Companies focusing on sustainable practices and products are well positioned to tap into new markets, gain a competitive advantage, and strengthen customer loyalty. This presents an excellent opportunity for progressive enterprises to invest in sustainable solutions that not only benefit the environment but also generate economic value.
• The PwC report ‘Transact to Transform’ confirms that most respondents see transactions as the best way to keep pace with rapid market changes. Moreover, a significant number of CEOs plan to use transaction activities to achieve technology goals for their companies. To be successful in the evolving M&A landscape, companies must embrace transformation. Actively adapting business models to rapidly changing market conditions and technological developments is crucial for the company's survival.

Below is an overview of the subsectors where we expect M&A activity.

• Food retailing
  We expect a further consolidation trend within the supermarket landscape in response to challenging market conditions such as cost increases and pressure on consumer spending. Additionally, these businesses face high investments in technology and home delivery. Supermarkets will need to operate more efficiently by acquiring consumer-focused capabilities, such as investments in advertising, logistics, and AI for better analysis and personalization. Scalability is crucial, leading smaller players to acquisitions and other collaborations.
• Food producers
  Food and beverage producers are optimizing their portfolios, continuing to stimulate M&A activity. In 2024, producers will be under pressure to lower price levels of their products due to declining input costs after inflationary peaks. This may lead to a greater gap between winners and losers, creating opportunities for transactions. The sector remains attractive to investors, especially for companies focusing on innovation and sustainability, such as non-animal products and environmentally friendly ingredients.
• Retail sector
  The retail sector is facing various challenges. For instance, inflation has led to higher consumer prices and pressure on the volumes of more expensive and non-essential products. It has also resulted in higher labour and rental costs, and there is a shortage of available personnel due to low unemployment. Healthy companies are expected to pursue mergers and acquisitions to strengthen their position, while businesses with outdated formulas may cease operations. This predicts difficult times for shopping streets. Restructuring is a challenge for many physical retail businesses, especially due to long-term lease contracts, high employee severance costs, and the aforementioned COVID-19-related tax debt.
  
  Companies in online retail experienced accelerated growth in the years 2020-2021. Consumer spending partially returned to physical retail in 2022 and 2023. Online retailers who have successfully retained their customers and returned to a growth trajectory will seize this moment to pursue a transaction. We also expect online players to take more steps towards the physical channel to deepen the customer experience. M&A activity will increase once the situation stabilizes, as companies with a healthy and predictable cash flow will be attractive to investors.
  
  Koos Beke: ‘The retail sector is facing a perfect storm of challenges, including the need to repay support received from the government during the COVID-19 period. This may reduce interest in this sector on one hand, but on the other hand, it also offers M&A opportunities to enter in combination with debt restructuring'
• Leisure and hospitality
  Since the COVID-19 pandemic, there has been a growing demand for leisure activities and travel. People want to enjoy their free time and gain new experiences. Particularly, long-distance travels are popular for adventure and exploring new destinations. ‘Despite the increasing demand for vacations, Dutch holiday parks are under pressure because consumers are more critical of the increased prices and the value they receive for them', says Leonie Oldekamp, hospitality & leisure expert. ‘Holiday parks will likely have to adjust their prices to remain competitive. Nevertheless, we expect the broader leisure sector to recover from the impact of COVID-19, with positive outlooks for the industry.’
• Consumer health
  The demand for consumer health products continues to grow due to demographic changes, such as an aging population, and behavioural factors. There is a growing interest in companies offering health solutions or sustainable products, through the use of natural and plant-based ingredients. Mergers and acquisitions will be used to accelerate growth and achieve strategic goals.
• AgriFood
  We expect the succession issue to be a major catalyst for an increase in M&A activities in the AgriFood sector. Owners of family businesses from the baby boomer generation are reaching retirement age and may not always find succession within the family. They will look at alternative options, including selling their business. Additionally, consolidation is often necessary to remain relevant within the chain. Larger companies and investors will seize this opportunity to acquire smaller players to increase scalability, optimize their supply chain, and achieve synergies. Agri-tech companies, which offer innovative solutions to challenges within the agricultural sector, will also be attractive targets for acquisitions.