publive-image

In the consumer packaged goods (CPG) industry, mergers and acquisitions (M&A) continue to grow. There were about 50 acquisitions in the food and beverages category alone last year, of which 8 deals were surpassed US$500 million. Every consumer product companies across the CPG industry today wants to grow their business model. Taking the US CPG industry growth in 2018, the industry accelerated slightly and reached 2.0%, compared to 1.4% in 2017.

As per the reports, M&A activity is at its historically high levels, which is up 30% since 2013. So, due to the convergence of factors, including slowing growth prospects, aggressive private equity buyers, and changes in US tax law, this growth is continuing to rise.

Growing business, mergers and acquisitions remain a potential expeditious route among consumer goods companies, even with the qualms of transaction success. As the acquisition size grows, the integration challenges will become tougher. And, to unlock the full potential of an acquisition, speed of IT integration becomes critical.

Leading to More Deals

Over the past few years, most M&A deals across the globe in the CPG sector have destroyed value, and in most cases, the reason was poor preparation and execution, insufficient integration, or bad timing. In FMCG world also things have changed, the industry that has been among the most reliable value creators in the business world. The first and indispensable challenge is the growth rates of FMCG companies which are decelerating in both developed and developing markets.

The global food and beverage business’ annual growth has declined from 5.2% in 2011 to 2.7% in 2017. In home and personal care, the growth rate also dropped from 8.3% to 4.4%. The interest of private equity and changes in US tax law also created a challenging environment for the CPG industry and continue making M&A activity favourable in the industry.

So, against this changing landscape, industry leaders are doing deals, but they are not simply maintaining their existing state of affairs. Just making deals is not adequate, making value-creating mergers and acquisitions require a strategic approach. So, CPG companies have to identify much more driving factors that can help in growing the industry.

Focusing on New Sources

CPG companies have to focus on finding new sources of growth. For instance, big players acquire small or midsize companies that have shown a strong growth route in terms of both in existing or new product categories and markets, channels, or customer base with high growth.

For the CPG companies who looking to their business growth, they have to comprehend cultural and operating model differences, increasing scale in operations, and looking for targeted integration opportunities in the back office.

Reshaping Portfolios

Most companies in CPG gained new, critical capabilities that they used to strengthen their legacy brands by reshaping and adding new brands to their portfolios. Additionally, acquirers can sell off less-attractive assets to streamline their portfolio and pay their attention to more profitable and high-growth businesses.

Keep Tapping Consumer Trends

By tapping into consumer trends, most leaders in CPG maintained or increased volume through M&A activity. For example, a CPG leader among large players in 2017 and 2018, Constellation Brands, which drove the lion's share of 8.3% out of 9.8% of total growth volume. The CPG leaders typically invest in plant-based products, multifunctional beverages, simple and transparent packaging or ingredients, premium convenience, self-care, among others.

Understanding these driving factors, CPG companies can lead to more successful and profitable deals. It will also be interesting to see how the M&A wave will accelerate the industry in years to come.