Consumer products M&A


Financier Worldwide Magazine

January 2019 Issue

FW moderates a discussion on consumer products M&A between Will Hayllar, Coye Nokes, Christoph Treiber, Adam Xu and Marek Zdziech at OC&C Strategy Consultants.

FW: Reflecting on the past 12-18 months, how would you describe M&A activity levels in the consumer products space? What are the underlying drivers of activity?

Hayllar: There were record levels of M&A activity seen in our latest year’s review of the 50 largest global consumer packaged goods (CPG) players, with those players conducting 60 deals valued at over $20m declared in the past year. That is the highest we have seen in the 15 years we have been doing the study. Beyond this, we have also seen increasing levels of smaller scale investment by major players, both outright acquisitions of small businesses and venturing investments in early stage businesses. Nine of the 10 largest global CPG players now have their own in-house venturing fund.

Nokes: This activity is reflective of the significant shifts we are seeing across many dimensions of the consumer products industry: changes to the products consumers want, with increasing interest in a diverse range of nutritional trends, such as natural, ‘free-from’, vegan, functional health, high protein and so on, as well as the environmental and sustainability impact of organic, fair trade, sustainable raw materials and packaging, and an interest in premium products, as well as the growth of private labels in many markets. There have also been big changes in how and where consumers are buying products, with growth of different digital channels, including direct to consumer models, the rise of discounters and significant new digital marketing channels and tools being used to influence purchase choices.

Zdziech: These changes have shifted where growth can be found and have often benefitted small businesses that are well positioned to capitalise on these growth dynamics. The rise of these small businesses has exacerbated the growth challenge that many major players have faced – the global 50 leaders have lost market share in aggregate in recent years and have seen underlying organic volume growth of only 0.6 percent, well below global population growth. This rise of well positioned, smaller insurgent businesses has been aided by developments in digital technology that have reduced the scale advantages that the major players have historically enjoyed. As a consequence, more major players than ever are acquiring smaller, well-positioned businesses to accelerate their shift in focus toward growth areas and acquire the new capabilities needed to sustain growth.

Treiber: At the same time, many of the major players are coming under increasing pressure from activist shareholders to restructure and make themselves more efficient and profitable. This, in turn, is driving further M&A, whether consolidating big businesses to realise cost synergies – think Kraft-Heinz and the previous wave of consolidation in beer culminating in ABInbev acquiring SABMiller, both backed by 3G Capital – or triggering the disposal of parts of businesses that management deem non-core to their future, such as Unilever’s disposal of its spreads business. We are also still at a point in the economic cycle where there is a good supply of cheap capital and corporate balance sheets are relatively strong. This makes it easier to finance the M&A that corporates want to undertake to accelerate their strategic shifts and contributes to the ever-growing amount of private equity capital available that is looking for opportunities to invest.

Xu: M&A in consumer products in China has been steadier, partially because of the deleveraging of the economy since 2017. The area where we have seen more major transactions is in the upstream stages of the food sector, for example big dairy groups’ acquisition of dairy farming to secure the source of milk. Similar to the global trend, there have been a lot of small-scale investments by leading consumer companies in China, as they seek to respond to the sectoral disruption from technology, shifting consumer needs of younger consumers and rising income levels.

The increased appetite for more entrepreneurial, flexible careers has reduced the appeal of major corporations in favour of smaller growth businesses.
— Marek Zdziech

FW: What market insights can we draw from recent deals, in terms of their size, value, location, and so on?

Hayllar: The breadth of changes and deal drivers means there is a wide spread in deal activity. However, there has been a shift toward expansive rather than defensive M&A among the major players. Over 70 percent of the acquisitions made by the global 50 in the past year were to accelerate the expansion of geographic coverage or entry into new product areas, up from 60 percent in the previous year. Correspondingly, the proportion of deals driven by consolidation in existing markets fell from 39 percent to 27 percent of acquisitions.

Nokes: These major moves to access growth include buying into new categories, such as Reckitt’s acquisition of Mead Johnson to enter the faster growing infant milk formula category, with strong exposure in China, and the sale of their slower growing US food business, or scaling up faster growing parts of their portfolio, such as Campbells acquiring Snyders-Lance to scale up its snacking division.

Treiber: Coca-Cola acquiring Costa takes the firm into the fast-growing coffee market and gives Coca-Cola a different route to market exposure into the growing coffee shop channel, where the major soft drinks players have historically been poorly represented. We have also seen continued acquisitions by multinationals to fill in gaps in emerging market exposure, particularly in globally consolidated markets like tobacco and beer.

Xu: In China, small scale investment in the consumer products businesses is mainly in micro brands which are digitally native, leveraging social media like WeChat and selling to consumers directly via e-commerce. Many of them then go into offline retail with stores as fulfilment centres, plus offering physical brand experiences. Taking food, for example, we have recently seen booming investment in ‘healthy’ categories like yoghurt, nuts and seeds, and salad.

Zdziech: The pressures faced by grocery retailers, driving consolidation of those retailers, as well as the rise of discount retail formats, is creating further opportunities for private label producers. This is a segment where scale within categories is working well and hence we are seeing consolidation to create large-scale international private label category champions. This phenomenon is most advanced in Europe, but is increasingly prevalent in the US where businesses like Hearthside have driven consolidation and where European players are expanding their footprint, such as Refresco’s acquisition of Cott’s US bottling business.

M&A in consumer products in China has been steadier, partially because of the deleveraging of the economy since 2017.
— Adam Xu

FW: Which sub-sectors within consumer products tend to be vulnerable to changing consumer tastes, demands and shopping habits, and therefore fertile ground for M&A activity?

Nokes: Changes are happening almost everywhere across sectors but there have been some differences in the mix of these. Personal care and beauty has both insurgent brand propositions, in terms of premium, natural and professional products, as well as a channel shift with the direct to consumer (D2C) space getting more traction given the high value density of the products. Food and soft drinks is seeing a lot of insurgent brand propositions in many categories around premium, health and naturalness, but there is less of an online channel shift in this sector as the value density and mode of shopping makes D2C and also third-party online home delivery more challenging.

Zdziech: Beer, wine and spirits is experiencing substantial trends toward premium brands with the major players being active consolidators of these premium insurgents.

Treiber: Homecare is the most stable area as there are relatively lower levels of insurgent brand activity in categories where consumers still largely buy on a functional basis, favouring the big producers. However, even in this space there are trends, such as ‘green cleaning’ which create space for insurgent brands, like 7th Generation and Method, which have been acquired by Unilever and SC Johnson respectively.

Xu: Any sub-sectors where millennials and ‘generation z’ are becoming a bigger part of consumption power are where we see more new brands emerging. These consumers are mainly at the stage of buying for themselves, so snacking, convenience food and beverage, and beauty are all key areas.

Hayllar: Across categories, the greatest shift has been in areas where consumers are emotionally engaged in the purchase decision, and often buy a range of products. This creates the best conditions for insurgent brands to communicate to consumers and drive trial.

FW: How have companies, particularly well-known brands, responded to a more volatile consumer spending environment? How would you characterise the overall impact of the slowdown in organic growth?

Hayllar: Performance across brands and producers is increasingly diverse. Some big brands have managed to maintain their relevance to contemporary consumers, harnessing the relevant macro-trends and executing well to drive share growth, but many others have been losing ground to the myriad of insurgents. The median organic growth rate of the major players globally has fallen to around 3 percent and when you actually look at the big brands themselves, growth is lower – in the UK, half of the top 100 brands were in decline in 2017. However, top quartile organic growth of major players is above 5 percent and players like Heineken are still driving strong growth with their core brand, capitalising on trends like the rise of low and non-alcoholic beer to maintain relevance.

Treiber: The slowdown in growth is putting pressure on management to find new initiatives to restore growth, with M&A often used as a lever to accelerate this through the acquisition of faster growing smaller brands, as well as the disposal of struggling orphan brands by parent companies.

Nokes: This slowdown also increases the pressure to drive up margins in the absence of growth, encouraging activist investors to launch takeovers and, more broadly, to drive businesses to consolidate and deliver profit growth that way. Activist investor pressure also contributes to the decision to sell slower growing or struggling parts of the business, for example Unilever Spreads, Reckitt US Foods, Campbell exiting its fresh division and Kellogg’s planned disposal of Keebler.

Zdziech: Top management of these major corporations face a big question as to whether they fundamentally shift their business model to increase the number of targeted insurgent brands which they include in their portfolio in order to access growth, or continue with the past drive toward simplifying portfolios to a smaller number of global brands in the belief that investing in these brands can deliver growth.

The pressure to act fast and drive quick boosts to the bottom line can undermine the activities needed to underpin longer term growth.
— Christoph Treiber

FW: As the consumer products industry continues to consolidate, how will companies use M&A to adapt, innovate and differentiate themselves in the marketplace?

Xu: In China, more and more established consumer companies are starting to take a venture or portfolio investment approach, both in multinationals and local Chinese companies. PepsiCo has set up a local venture capital operation aimed at investing in local up and coming new brands and categories in China with D2C models. China Resource Enterprise, a conglomerate that owns a consumer and retail portfolio, has also set up a private equity fund to buy Asian brands to then scale up in the Chinese market.

Nokes: M&A is a critical part of the agenda for most multinationals as they seek to adapt to the changing market. They are placing a premium on businesses with innovative products, new capabilities and access to different channels that they can then look to scale. This is driving the high valuations being paid for small, high-growth businesses as, if they can get it right, the value for multinationals from scaling these businesses is huge. Estée Lauder, for example, has actively been acquiring high-growth brands, like Le Labo which as well as having an innovative product proposition also brings new capabilities in the form of their retail footprint.

Zdziech: These acquisitions are also being used to attract talent that multinationals may otherwise struggle to access. The increased appetite for more entrepreneurial, flexible careers has reduced the appeal of major corporations in favour of smaller growth businesses. As multinationals acquire some of these smaller growth businesses they have the potential to inject more of this entrepreneurial talent into their businesses but need to think carefully about how to retain and harness this. Retaining the founding entrepreneurs with some kind of earn-out mechanism has become increasingly common, sometimes not only linked to the performance of the acquired brand but also the impact those teams can have on the broader business.

Hayllar: All of this change is adding complexity into companies which are then looking to simplify their offerings by disposing of divisions that do not fit the dynamics and changes companies are making to their core operations.

FW: With consumer products companies increasingly turning to M&A as a growth strategy, what might this mean for shareholder returns in the long-term?

Hayllar: The increased level of M&A raises the stakes, with a greater difference between winners and losers. More M&A activity could drive real accelerated value if deals are well targeted and executed, but execution is challenging and most acquisitions fail to deliver the planned value, partly as a result of a lack of a coherent plan which has been stress tested and has real commitment to the business.

Treiber: The rise of activist investors, from the controlling stakes of 3G through to minority activists taking stakes in many of the major multinationals, is adding urgency to the drive to increase returns in these businesses, making life harder than ever for management. In some cases, this may precipitate key decisions being made that can unlock value but had been put on the ‘too hard’ pile before pressure was applied. However, in others the pressure to act fast and drive quick boosts to the bottom line can undermine the activities needed to underpin longer term growth. Would Nespresso have been given the time it took to really take off if activist shareholders had been knocking at the door?

Xu: Many innovative new companies enjoy high growth but often struggle with profitability. The key for multinationals acquiring these businesses is to be confident that they have a path to drive profitability as these brands and businesses mature. Unpicking the effects of early stage lack of scale versus a fundamental weakness in the economics of the proposition is critical.

Zdziech: We have also seen the relative fortunes of different business models changing, with the rise of own label producers at the expense of some of the larger branded players. In the UK, the return on capital employed (ROCE) of own label producers has now exceeded that of branded players among the 150 largest food and soft drinks producers, reversing the received wisdom that own label producers are the poor relations of the sector. While their profit margins remain lower than branded producers they have high asset utilisation, and this has further increased after several years of sustained higher growth than their branded peers.

Nokes: Nowhere is the divide between winners and losers starker than among the entrepreneurs founding the insurgent branded players. For those that succeed in getting traction and then attracting the attentions of a multinational suitor, the returns can be enormous. These high-profile successes attract new waves of entrepreneurs hoping to emulate George Clooney with the millions he made through the sale of the Casamigos premium tequila brand he co-founded. However the vast majority of these newly founded businesses still fail at the early stages, not least due to the vast array of start-up brands struggling to cut through in many of the on-trend spaces. The fundamental relationship between risk and rewards is alive and well.

While we have started to see the costs of finance edge up, there remains a high willingness to put capital to work through M&A.
— Will Hayllar

FW: In your experience, what factors are essential to successful dealmaking in today’s consumer products sector? How can acquirers ensure they minimise risks and extract the anticipated benefits from a transaction?

Hayllar: It should start with strategy. The business should have a clearly formed strategy about how it wants to evolve to capitalise on the shifts in the industry and then M&A can be used to help accelerate the realisation of that strategy, with individual deals objectively assessed against their ability to deliver on strategic goals. Too often the reverse is true, with deals being done to mask an absence of a clear underlying strategy. If you have clear alignment to a strategy then multiple deals can be done and benefits start to compound to create something much greater than the sum of the parts. The success Diageo has had shifting its portfolio into premium spirits has been through a combination of organic development and focus within its own portfolio and a series of acquisitions made over a decade. That sustained focus has helped Diageo create a Reserve Brand division of premium brands that now delivers one third of the total organic growth of the business.

Zdziech: Governance is also key to any successful deal. A potential deal will almost inevitably have a champion among the senior executive team who believes in the opportunity and creates the momentum to approach the deal. There must be enough counterbalances among the executive team, and ultimately the board, to ensure hard-headed reality checks are applied. Those decisions need to be informed by the right experts, both within the business and external advisers, to equip teams to make the right decisions. All of this is easier to do when the strategic objectives and intended value creation levers of the deal are clearly defined upfront.

Treiber: Getting the deal done is only the start. Having a clear value creation plan to define the tangible actions that will help to realise the major sources of value creation from the deal, and the resources needed to deliver this, is critical. This is a discipline that private equity investors often do better than corporates, where the deal rationale and synergy drivers can get lost in the day-to-day pressures and competing priorities across the business.

Xu: The industry should learn from other sectors, like tech, where corporate venture investing is more developed. In China, some technology companies like Xiaomi have successfully set up a corporate venture fund to invest in and also support early stage companies’ growth. It has a structured process not only in deal valuation but also in supporting the companies it acquires to grow and become successful. It has also defined its core value creation levers for the acquired business – in this case, design, brand, channel and funding. For consumer companies, in China and beyond, we think it is a good practice to look into.

Nokes: In our experience, the consumer goods companies that are actively making venture investments and acquisitions often start out with good intent and structure to support the newly acquired businesses but lack the patience to see them through to a stage where they can succeed at scale. They start out with clear incubator teams supporting these venture acquisitions, providing clear focus and avoiding them getting lost in the parent company. However, these are usually only structured to support new businesses for a few years, and after initial growth success they are often passed too quickly into the core business where they quickly get smothered by the larger established brands that get most of the attention and investment. Finding more flexible structures that support venture brands for longer ‘through their difficult teenage years’ while selectively tapping into resources of the parent where these can help them scale, gives a much greater chance of ultimately growing the brands to the point where they can sustain themselves as a scale part of the core parent organisation.

Nowhere is the divide between winners and losers starker than among the entrepreneurs founding the insurgent branded players.
— Coye Nokes

FW: What are your predictions for M&A activity among consumer products companies going into 2019, and beyond? What overarching trends are likely to dominate this space?

Hayllar: The underlying drivers of M&A activity in consumer goods are not going away any time soon. The shifts in consumer demands, ways of shopping and capabilities required will continue to fuel the need for businesses to adapt and the desire to use M&A to help achieve that. Similarly, activist investors show no sign of disappearing and thus are forcing management teams to keep the pace high. This should certainly sustain the continued high level of acquisitions of insurgents and disposals of divisions no longer considered core, often to private equity investors. The ‘mega mergers’ that we have seen in sectors including beer and tobacco are perhaps more dependent on the ready supply of cheap money. While we have started to see the costs of finance edge up, there remains a high willingness to put capital to work through M&A. Whether this will be sustained through 2019 at a global level is tough to call. We are certainly far enough through the economic cycle that there is a degree of twitchiness about when the next global downturn may hit.

Nokes: Geopolitical uncertainty is generally a brake on dealmaking and with potential US-China trade wars, Brexit and other global tensions, there are plenty of sources of volatility. However, for brave investors, this volatility can create opportunity to acquire high quality resilient businesses at attractive valuations. Since the Brexit referendum in 2016 and the subsequent devaluation of the pound, American investors have been actively buying up UK businesses, deals which have accounted for the majority of acquisitions in the food and beverage industry, by value, in the past 18 months, including deals like Post’s acquisition of Weetabix and Pilgrim’s Pride purchase of Moy Park.

Xu: Most economists expect 2019 to be a highly uncertain year for the Chinese economy as the deleveraging process continues. This has tightened the supply of funding, so we would be conservative about the level of M&A activities. One area of uncertainty is around many mutinationals’ China operations. Many of them are making losses and are re-evaluating their global footprint after investing heavily in China over the past decades. Some have started to ‘exit’ China, often selling their interests to the same domestic competitors they have struggled to win share from, so further carving out of multinationals local operations could be one of the key dynamics for 2019 in China.


Will Hayllar works in OC&C’s consumer practice, based in London, and for a number of years has led the firm’s review of the global 50 largest consumer packaged goods producers. Areas of particular expertise include applying end-game thinking to develop growth and competitive strategies that capture the true value creation potential of businesses. He also works with corporate and private equity parties on all stages of the transaction lifecycle, from opportunity identification through acquisition and, ultimately, divestment. He can be contacted on +44 (0)207 010 8000 or by email:

Coye Nokes works in OC&C’s consumer and retail practice, based in New York, and leads the firm’s beauty and luxury work globally. Her key areas of expertise are helping businesses drive growth, adapt to changing channel dynamics and pursue international agendas. This includes a significant focus on digital, direct to consumer and innovative business models. Ms Nokes also has extensive experience working in M&A for both corporate and PE on both identification and diligence of opportunities. She can be contacted on +1 (212) 301 0754 or by email:

Christoph Treiber is a partner in OC&C’s consumer team based in Munich. He has significant expertise in the consumer goods space, working with both brand owners and own label manufacturers on a global basis. He works with both international blue chip fast-moving consumer goods players and ambitious mid-sized businesses across the value chain, with a particular focus on driving profitable growth, as well as supporting corporate and private equity parties through the M&A lifecycle. He can be contacted on +49 89 8091 3680 or by email:

Adam Xu is a partner in OC&C’s consumer practice based in Shanghai, China. He has practiced consulting in consumer and retail over the past 12 years and prior to that, he was a consumer researcher. His areas of expertise include developing China entry and growth strategy, designing go-to-market transformation and defining e-commerce or digital strategy for consumer and retail clients in China. He also works with corporate and private equity parties on M&A due diligence and post-deal value creation plans, especially for digital and direct to consumer brands in China. He can be contacted on +86 21 6031 8099 or by email:

Marek Zdziech has almost 20 years of senior level experience, both in operational and advisory roles. Over the years, he has gained a wealth of knowledge in the areas of strategy, marketing and general management. He advises clients in the fast-moving consumer goods, retail and technology, media and telecommunications sectors, developing and implementing innovative strategic solutions in these highly competitive industries. He can be contacted on +48 22 826 24 57 or by email:

© Financier Worldwide


Will Hayllar

Coye Nokes

Christoph Treiber

Adam Xu

Marek Zdziech

OC&C Strategy Consultants

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