Consumer – Still cautious

2024 was not quite the year we all had anticipated for a resurgence in M&A activity in the consumer sector. A combination of global economic challenges, major national elections and the increasing regulatory burdens meant the nervousness to engage in large-scale M&A continued for another year. Both deal volumes and values remained subdued, although there were some notable mega-deals in the market which helped support overall deal values. The most significant of these was Mars Inc.’s $36.1 billion acquisition of Kellanova, Kellogg's snack brand (including Pringles, Pop-Tarts and Rice Krispies Treats). Upon completion, it will be the largest deal ever by a privately held company.

A key challenge faced in deals in 2024 was the mismatch in valuations between buyers and sellers, caused in no small part by high interest rates creating challenges in securing financing. This led to a bifurcation of deal activity, with corporate buyers having the ability to work from stronger balance sheets and pass on costs to end consumers, meaning that they were better positioned to pursue strategic acquisitions. Financial buyers, on the other hand, remained hesitant to engage, such that the dry powder continued to pile up. With premium assets still commanding high multiples, and smaller, less complex deals with lower capital commitments getting away relatively easily, being somewhere in the middle was a tough place to be for sellers in 2024.

The interest rate cuts last year did offer a glimmer of hope that private equity would get back in the game. As the year rolled on, we saw an increase in PE activity (with a strong focus on the mid-market), particularly in the latter part of the year. Given the abundance of backlogged assets at PE funds, we are expecting deal activity to gather pace in the next 6 to 12 months, particularly if there are further interest rate cuts to come.

There is, however, still likely to be some caution in the sector whilst consumer companies get to grips with the landscape: the new Trump administration, which may be a boon for some in terms of deregulation, but not for those whose products, owners or brand values fall within his crosshairs; the new UK Labour government, which is navigating the tension between its wish to deliver growth and its instinct to regulate more; and the political unrest in Europe and war in Ukraine, which, impact on demand aside, will put certain producers' supply chains in jeopardy. UK industry bosses have voiced concerns of a potential wave of insolvencies within the retail and hospitality sectors as the impact of the Labour government's budget is realised. Homebase, the DIY and garden retailer, was among those that entered administration last year. Frasers Group continued to be active, snapping up a number of brands out of administration.