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U.S. Retail & Consumer Q1 M&A Value Jumps 148%: PwC

The U.S. retail and consumer (R&C) sector experienced a strong first quarter in 2015 for merger & acquisition (M&A) activity, which was driven by seven megadeals (deals with a value of more than $1 billion), according to PwC’s U.S. retail and consumer deals insights first quarter 2015 report.

During the quarter, 39 deals were inked with values over $50 million, up 11 percent from the fourth quarter 2014, but down 9 percent from the 2014's first quarter. Total 2015 first quarter transaction value of $78.8 billion was up 272 percent from $21.2 billion in the fourth quarter of 2014, and up 148 percent compared to the same time period last year – as one major megadeal accounted for 67 percent of the total deal value announced in the first quarter.

“First quarter M&A activity in the retail and consumer sector was driven by seven mega deals and anchored by a large food and beverage deal," explained Leanne Sardiga, partner and PwC’s U.S. retail & consumer deals leader. “As some large diversified food companies are being challenged by smaller more focused enterprises, these companies are splitting into smaller businesses to better compete."

Consumer Sentiment Reachs 10-year High

Consumer sentiment also reached a 10-year peak in 2015 Q1, noted Sardiga, "yet, core retail trade sales stagnated. Although retailers catering to lower and middle-income consumers may benefit disproportionately from fuel price declines, organic growth may remain a challenge. However, we anticipate that companies will continue to engage in deals to drive growth.”

Private equity (PE) participation continues to be active, with nine PE deals each valued over $50 million announced for the first quarter. PE volume as a percentage of total deal volume was 23 percent, down from 37 percent in the fourth quarter of 2014 and down from 26 percent in the first quarter of 2014. However, PE value as a percentage of total deal value was 69 percent, up from 60 percent in the fourth quarter of 2014 and up from 12 percent in the first quarter of 2014.

Cross border activity decreased during the first quarter of 2015 on a sequential and year-over-year basis and represented 31 percent of deal volume during the quarter, lower than the average of 50 percent over the past eight quarters. Despite the current quarter’s slowdown, PwC expects cross border activity to continue as domestic R&C companies look to expand into faster-growing international markets.

In Q1, the R&C sector experienced the slowest quarter since the first quarter of 2011 with only one IPO for the period. The pullback in the R&C sector is consistent with the notable slowdown in the overall IPO market – a likely result of increased volatility in the fourth quarter of 2014, more opportunities for companies to obtain private financing, and an increase in the number of companies dual-tracking their exit strategy.

“R&C deal activity is off to a good start and we expect that the R&C sector will likely continue the positive momentum that has been building over the past few quarters,” added Sardiga. “Some factors  that could impact deal-making through the remainder of the year include: continued shareholder activism, companies continuing to reposition their businesses in line with megatrends and alternative business models, access to consumer data tracking and collaborations to help drive growth, continued private equity participation for deal targets and companies adopting an asset-light model.”

PwC’s U.S. retail and consumer deals insights is a quarterly analysis based on data for transactions with a disclosed deal value greater than $50 million, as provided by Thomson Reuters through March 31, 2015, and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets.

For more information, visit PwC’s Deals practice.

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