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Mergers and acquisitions by the top 50 global consumer goods companies totalled $226 billion in 2015 – more than the previous four years combined – according to new figures from global strategy consultancy OC&C.
But despite the increase in activity, revenue growth among the top 50 declined for the fifth year running as slowdowns in emerging markets, currency volatility and competition from agile local competitors put further pressure on the world’s consumer goods giants. Mergers and acquisition have become the primary source of revenue growth, as sales growth in the sector slumped to 3.4% – almost half what it was just five years ago.
The report reveals that overall acquisitions value quadrupled from $56 billion in 2014 to $226 billion in 2015, with a flurry of large deals making 2015 the biggest year for mergers and acquisitions in the sector since 2008.
Two “mega-mergers” – ABInbev-SABMiller and Kraft-Heinz – accounted for $175 billion, or three quarters, of that total.
Will Hayllar, partner at OC&C Strategy Consultants, said: “The Global 50 consumer goods giants are finding their very business model under siege from all sides. Smaller local competitors continue to gain share in not just [Brazil, Russia, India and China] but also western markets, and private equity firms like 3G Capital have been demonstrating a different, more efficient way to run an FMCG giant.
“3G Capital has increased the profit margins of AB Inbev, Kraft and Heinz by between 8% and 10%. Shareholders are now challenging the cost structures of other Global 50 giants in search of similar boosts to profitability.
“Meanwhile, nimble local players have been stealing share across the board. In western markets, their success has been fuelled by exploiting fragmenting customer demand and savvy use of digital. Dollar Shave Club’s direct-to-customer business model, for example, has propelled the company to over $150 million in sales and number two market position in US shaving in just five years. In emerging markets, local players have been taking share through a combination of scale in local distribution networks, tailoring products to local trends and tastes, and agility.”
But according to the consultancy firm, mergers and acquisitions was just one area being used by global consumer goods companies to lift themselves into growth.
Marketing spend was up by 0.7% as a proportion of sales, and research and development by 0.1%, together contributing an $8 billion boost in investment. Leaders in the industry have also been embracing digital strategies across the value chain in a further bid to drive growth.
Hayllar continued: “Greater investment in R&D and marketing, and the surge in M&A activity show that the Global 50 aren’t taking tough market conditions and aggressive competition lying down. But there’s an additional growth lever that certain FMCG businesses are embracing better than others, and that’s digital innovation.
“Consumer goods companies need to be thinking about how digital can bring value across their whole business – from supply chain optimisation and digitally facilitated new product development to marketing and direct-to-customer sales. The digital revolution has also heightened the war for talent, with FMCG businesses increasingly losing out to tech players in the race to attract the top graduates. Those who embrace digital ways of working and a more entrepreneurial culture will be better placed to attract and harness the talents of the digital native generation.”
© FoodBev Media Ltd 2021
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