Multibillion Dollar Deals Propel Q1 M&A Activity

U.S. retail and consumer merger and acquisition (M&A) activity during Q1 2014 was driven primarily by five multibillion dollar transactions, with more than half involving the food and beverage sector, according to PwC's U.S. retail and consumer deals insights Q1 report.

For the three month period ending March 31, 2014, there were 34 deals in the retail and consumer sector with disclosed values greater than $50 million, accounting for $39.3 billion in total deal value. Deal volume for the quarter was consistent with the first quarter of 2013, while deal value was down 14 percent from the prior year. 

“Deal activity showed strength in the first quarter of 2014, dominated by multibillion dollar deals in the food and beverage sectors, and confirms our positive outlook for the remainder of the year,” said Leanne Sardiga, partner and PwC’s U.S. retail & consumer deals leader. “According to our Global CEO Survey, retail and consumer goods CEOs are seeing a need to change their strategies around M&A, joint ventures and strategic alliances to capitalize on global trends they believe will most transform their business."

"But with very few retail CEOs saying a change program is underway or completed," Sardiga added, "we believe this suggests further M&A is on the horizon – and we’re currently helping many companies with these strategic overhauls.”

Cross Border Activity

Cross border activity increased during the quarter, representing 59 percent of total deal volume during the first quarter of 2014 – higher than the average, 51 percent, over the last eight quarters.

This rise in cross border transactions is expected to continue through 2014 as retail and consumer companies increasingly look to expand into faster-growing international markets. Accordingly, PwC’s Global CEO Survey found that 18 percent of retail and consumer CEOs plan to initiate or complete a cross border deal in the coming 12 months.

Private equity (PE) activity remained strong in Q1 2014, PwC's analysis found, led by the proposed $8.5 billion acquisition of Safeway Inc. PE deal volume represented 24 percent of total retail and consumer deal volume, down from 28 percent in Q4 2013, and down from 37 percent in the first quarter of 2013. PE deal value was 30 percent in the quarter, up from 12 percent in Q4 2013, but down from 77 percent during the first quarter of 2013.

Spin-offs and Divestitures

Spin-offs and divestitures remained a key strategy in the quarter for retail and consumer companies looking to refocus their core businesses, and those in the food and beverage sectors have been the most active over the last five years. Divestitures were up slightly to 33 percent during Q1 2014 compared to 31 percent in Q4 2013 – consistent with the average for the last eight quarters. According to the report, spin-offs also remain prominent in the sector, with eight transactions in the pipeline as well as a continued level of overall shareholder activism.

Total retail and consumer industry IPO activity showed an increase year-over-year both in volume and value in the first quarter, as Q1 2014 saw six offerings price for total proceeds of $1.5 billion, compared to $1.3 billion from four offerings in Q1 2013. Activity is expected to increase in the remaining quarters of 2014 as the retail and consumer IPO pipeline is the strongest the sector has seen since April 2012, with 16 companies on file expecting to raise $4.7 billion, contingent upon volatility in the market affecting these potential transactions.