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European Plastic Packaging Report

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European Plastic Packaging Report

  1. 1. Global Consumer GoodsSector Report 2012 www.mergers-alliance.com
  2. 2. Sector Report 2012Contents Report 2 Introduction 3 Report Highlights 4 Deal Focus by Country Americas Brazil 8 Mexico 10 USA 12 Asia, Africa and Middle East China 14 India 16 Japan 18 Turkey 20 Europe France 22 Germany 24 Italy 26 The Netherlands 28 Poland 30 Russia 32 Spain 34 United Kingdom 36 Contacts 38 Transactions 40Consumer Goods - Contents 1
  3. 3. Sector Report 2012 pReportAbout the reportThis sector report was edited by For more information on this Other sector reports availableAndre Johnston of the Mergers report please contact Andre to download from mergers-Alliance central team. To compile Johnston, Mergers Alliance alliance.com include:our findings we conducted Research Manager. Global Cleantech Reportinterviews with our sector expertsfrom each member firm within the Andre Johnston Global Engineering ReviewMergers Alliance partnership. We Mergers Alliance Global Food & Drinkalso surveyed owners and senior +44 207 881 2967executives within consumer good andrejohnston@mergers-alliance.com European Plastic Packagingsector organisations and privateequity investors worldwide.Deal FocusWithin each country’s Deal Focus overview of the consumer goods Key terminology: FMCG (Fastwe review merger and acquisition sector as a whole, highlighting the moving consumer goods)(M&A) activity, focusing on key market structure as well as CF+T (Cosmetics, fragrancesdeals and trends within the commenting on the key trends and toiletries) y-o-y (year onconsumer goods sector with an and the factors influencing M&A. year), CAGR (Compound annualemphasis on branded goods. growth rate) BRIC (Brazil, China, We provide our own insight on India, Russia). All deal values areWe have included tables of how we think the market might in US dollars unless otherwiserecent transactions where the play out over the coming 18 stated.target company is located in months and attempt to identifythe country under review. key investment opportunities.Additionally, we provide anDisclaimer not be acted on or relied upon or used as a this cannot be guaranteed and neither basis for any investment or other decision or Mergers Alliance nor any of its member firmsThis publication contains general information action that may affect you or your business. or other related entity shall have any liabilityand is not intended to be comprehensive nor Before taking any such decision you should to any person or entity which relies on theto provide financial, investment, legal, tax or consult a suitably qualified professional information contained in this publication,other professional advice or services. This adviser. Whilst reasonable effort has been including incidental or consequentialpublication is not a substitute for such made to ensure the accuracy of the damages arising from errors of omissions.professional advice or services, and it should information contained in this publication, Any such reliance is solely at the user’s risk. Consumer Goods - Report 2
  4. 4. Sector Report 2012Introduction Caution and uncertainty continue to affect the major economies and depress consumer confidence levels, especially in the US and Europe. Whilst the consumer product industry has been particularly exposed to the prevailing economic conditions we are optimistic that confidence will improve in 2012, creating new opportunities across all consumer markets.As you will see from our report, 2012 and beyond: how emerging seek growth through acquisitions,mergers and acquisitions (M&A) markets are critical to consumer wish to restructure or realise valueactivity in the sector has been product company growth; why in your business, our internationalprogressively rising since the multi-channel sales strategies are advisors are in a unique positionnadir of the global downturn in driving investment activity and to help you. Our member firms2009. The report highlights that how companies at the value, have a prominent position indespite very challenging markets premium and luxury ends of boardrooms across the world andtransactions are being completed consumer markets are benefiting are renowned for delivering anin many different consumer from those operating in the award-winning partner-ledsegments and geographies. middle of the market. Our work advisory service with seamlessIn addition a large proportion also highlights the level of private international cooperation.of these deals are cross-border equity investment in the sectortransactions reflecting the and how mid-cap companies and We hope you find our reportincreasingly global characteristics global corporates are shaping enlightening and welcome anyof the sector. their acquisition strategies. feedback on our observations and conclusions.Our report also contains a great As the global recovery takes hold,deal of market-leading insight into we at Mergers Alliance are ideallythe key issues facing the sector in placed to help you. Whether youAndy CurrieChairman of Mergers AllianceManaging Partner of Catalyst Corporate Finance LLP+ 44 207 881 2960andycurrie@catalystcf.co.ukConsumer Goods - Introduction 3
  5. 5. Sector Report 2012 p g gReport Highlights We at Mergers Alliance believe the main factors to shape M&A in the consumer goods sector over the next three years will be: Consumer confidence ready to recover Whilst there remains much uncertainty in the global economy, the latest consumer polls indicate that consumer confidence has reached a plateau and that tentative signs of a recovery are emerging (see Figure 1). Figure 1: Consumer confidence 120 10% Consumer Confidence 110 Unemployment Rate 100 9% 90 80 8% 70 7% 60 50 6% 40 5% 30 20 4% 10 11 08 07 09 10 07 10 08 08 1 12 9 01 00 20 20 20 20 20 20 20 20 20 20 20 t2 r2 ay ay v g p c ar b n n n No Oc Ap De Au Se Fe Ju Ja Ja M M M United States of America - Consumer Confidence Index United States of America - Unemployment Rate We expect this recovery in consumer confidence, which may be slow initially, to feed into consumer markets over the next two years. Consequently this will further stimulate corporate and institutional investment and M&A activity across the consumer goods sector (see Figure 2). Figure 2: Total deal volume global 1200 Transaction volume 1000 800 600 400 200 0 2008 2009 2010 2011 Consumer Goods - Report Highlights4
  6. 6. Emerging markets risingConsumer goods companies haverecognised that emerging markets area requisite for growth rather than justa complementary source of revenue.We expect this corporate focus to drivemore Western investment into emergingeconomies directly through acquisitionsor joint ventures.Our research shows the rise ofconsumer sector M&A in emergingmarkets and in particular Asia. Since2008, the proportion of M&A in theseeconomies has increased by over a fifthto represent 30% of all deals globally(see Figure 3).Figure 3: Emerging markets 4% 1% 100 Africa and the Middle East 90 Asia Pacific 80 Latin America & CaribbeanM&A Deal Volume 70 60 50 40 30 20 25% 10 0 M&A Volume 2009 M&A Volume 2011 Rest of World Europe and North AmericaThe deal flow is two way. Indianconsumer companies Godrej andGitanjali have been among the ten mostactive acquirers globally over the pastthree years, having completed 15 dealsbetween them. As with other BRICheadquartered multinationals, they haveset ambitious growth plans and haveacquired branded goods companies inboth developed and other developingcountries.Consumer Goods - Report Highlights 5
  7. 7. Sector Report 2012 p g gReport Highlights Adoption of multi-channel Private equity continues sales approach driving its love affair with M&A consumer brands Almost all consumer product The private equity industry has an companies have adopted a multi- established track record of working channel retail distribution model, which with private businesses to expand the“M&A is now one of themain growth strategiesfor consumercompanies domiciled included high street retail, online, mail order and television distribution. Online shopping accounted for the majority of overall retail sales growth in a number of developed markets during 2011 and is set to continue to dominate growth. distribution of consumer branded products in most developed countries. This trend has continued through the economic downturn although the focus has moved away from single channel retail distribution to multi-channelin mature economies. distributed products. ” Companies in the US, UK, Germany and the Netherlands have been Some of the more well known specialist particularly active in acquiring online sector investors such as L Capital and businesses and we expect further Change Capital have been active consolidation to occur across the recently as well as global players like developed economies. Carlyle Group, Oaktree Capital, Eurazeo and Blackstone Group. The Chinese market is forecast to become the biggest home shopping market globally – the B2C e-commerce market growing at 75% CAGR up to High prices paid for 2014. It is inevitable that successful high-end brands local online businesses will be targets During the past three years corporate of both acquisitive overseas and and private equity activity in the luxury local buyers. and premium segment has risen to reflect the increase in demand for premium goods from Asia, Russia Pressure on brands and South America. has intensified European luxury brands have been in Consumers in developed markets have particular demand and commanded been increasingly focused on price and high prices. The leading French luxury brand equity. Whilst this has meant conglomerate LVMH has made seven growth at both the premium end and acquisitions since 2008 including Italian value end of the branded goods jewellery maker Bulgari. Jimmy Choo, spectrum, there has been intense the iconic British lifestyle brand, was competition and margin pressure in acquired for c. $930m by Labelux, the the middle. Many of these brands have Austrian firm, which includes Bally and found themselves competing directly Belstaff amongst its portfolio. VF Corp, against their distribution networks, the leading US branded apparel which have developed private labels conglomerate, acquired Timberland offerings – currently growing at 10% for $2.2bn, at a valuation of 12.3x in the US and 6% in Europe. historic EBITDA. This has created a number of ‘distressed’ sales and both corporate and private equity investors such as Sun Capital have capitalised on these opportunities. We expect further distressed opportunities to emerge in the short term. Consumer Goods - Report Highlights 6
  8. 8. We expect to see the luxury and ceiling in terms of organic growth duepremium brand conglomerates to the mature and consolidated naturecontinue to consolidate the market of their respective markets, will beand provide the best exit route for compelled to pursue globalisationinvestors, who would have considered strategies.an IPO in previous years. The larger multinationals already have global sales and distribution operations, and are generally the first to acquire inCompanies in lower emerging markets however, we expectgrowth, mature to see more mid sized businesseseconomies need acquire in BRIC countries as the risks become more understood and the M&Ato acquire approach more accepted.M&A is now one of the main growthstrategies for consumer companiesdomiciled in mature economies.Companies that have reached aConsumer power One billion new middle class consumersA consumer tidal wave is on its wayin the form of the BRIC countries. 1600 1,350Whilst the economies in each countryvary significantly, their consumer 1400markets are characterised by a largelyuntapped rural consumer population, 1200expanding middle classes and the highincome disparities between the rural 1000and urban populations. It is estimated Chinathat one billion more consumers will 800emerge in less than 15 years. 600Whilst the consumption of basic goodssuch as food, beverages and clothing 250 400have grown most in line with GDP, the Indiaconsumption mix is changing. Certain 200sub-sectors, such as skin-care in Chinaand India and cosmetics and baby Brazil 0 Othersdiapers in Brazil, are growing fasterthan GDP. As a result, competition Year 2009 Year 2025for local brands is intensifying andacquirers are paying high premiums as Source: McKinsey & Companyconsolidation takes place. We expectpremiums to remain high as demandfor these brands and companiesexceed supply.Consumer Goods - Report Highlights 7
  9. 9. Brazil A BRIC success The baby diapers segment has experienced double digit growth over Brazil’s appeal to investors grows day the past few years - a trend that is by day and is quickly becoming one expected to continue due to the of the most appealing of the BRIC’s increasing purchasing power thanks to its booming economy and of the consumer and relatively improving business conditions. high birth rates. Brazilian GDP grew 7.5% in 2010 and is estimated to expand by 3.4% in “With the rise 2012, mainly driven by its internal Footwear IPO alerts sellers market, which benefits from record high in consumer employment and rising income levels. Arezzo, Brazil’s leading footwear company that holds an 11% market income and This social migration process is share and operates through franchises reaching over 30 million people who are the emergence as well as its own stores, went public in either joining the consumer base or are January 2011 raising US$339m. A large increasing their consumption habits.of 30 million new chunk of the proceeds (roughly 35%) The upper, middle and lower-middle will be used to acquire smaller brands.consumers, the (or A-B-C) income segments now It has been reported that other localBrazilian consumer represent 74% of the population vs. footwear companies are also currently 49% in 2005 thanks to the sharp seeking acquisitions both domesticallymarket has attracted increase in lower income consumer and overseas. Expect substantial spending power. A strong commitment consolidation activity in this sub-sectorglobal attention. to economic stability, along with a over the next 18 months.Despite substantial structurally sound financial sector, has contributed to consumer confidenceconsolidation in recent and capital expansion which shouldyears there are still have a positive effect on general economic growth.plenty of M&Aopportunities.” Population increaseFelipe Monaco, driving diaper marketBroadspan Multinationals are becoming increasingly attracted to the baby diaper segment. In September 2011 personal care giants Svenska Cellulosa Aktiebolaget (SCA) acquired baby diapers and wet wipes specialists Strong private equity Pro Descart Indústria E Comércio involvement for US$71m. Private equity involvement in the Domestic consolidation is also taking Latin American market is becoming place, in August 2010 multi-billion increasingly evident. dollar Brazilian conglomerate Hypermarcas acquired the Brazil based The Carlyle Group looked to expand its diapers, tissues and feminine care consumer portfolio by acquiring a 51% producer Mabesa from Grupo PI Mabe stake in Scalina, Brazil’s largest in a US$195m transaction which manufacturer and retailer of women’s represented an estimated 8.5 x EV hosiery and lingerie, for approximately to EBITDA ratio. Hypermarcas also US$160m. In the last five years, the acquired two other leading diaper Brazilian lingerie market has outpaced Brazilian companies (Pom Pom in GDP growth by circa 100%; a figure November 2009 for US$173m and that can be attributed to the Sapeka in March 2010 for US$211m) proliferation of the middle class and establishing its national leadership with the rising number of women with a 35% market share. expendable incomes. Deal Focus - Brazil 8
  10. 10. Indeed, women are quickly becoming Due to the highly fragmented nature ofa major economic force and are the apparel market in particular (the topexpected to have a profound effect five players hold just 16% of the totalon consumption habits. The cosmetics, market share) we expect the growingfragrances and toiletries (CF&T), eagerness to buy brands rather thanfootwear and apparel segments generic to drive M&A directed atare all expected to be boosted. emerging Brazilian clothing brands.Closer to home, in May 2011, LatinAmerican private equity fund SouthernCross acquired a controlling stake in E-commerce maturingBrinox, a kitchenware manufacturer Local consumer firms that havewith revenues of US$80m in 2010. traditionally sold their brands in retailApart from the major players, the stores are expanding into e-commerce,kitchenware market is highly a channel growing at over 30% perfragmented and Southern Cross hopes annum. Consequently, we anticipateto benefit by continuing its buy and moves by consumer firms looking tobuild strategy - acquiring other expand their distribution network toassociated brands through Brinox. acquire domestically domiciled online retail specialists. Overall, the Brazilian consumer marketConsumers switching has experienced a boom in recentto brands years, however several inefficiencies still exist, such as fragmented markets.Although Brazil is becoming This should nonetheless encourageincreasingly prosperous, the consumer major consumer players, foreignbase is still composed of mostly lower and domestic, that have their ownto middle income consumers; distribution channels and thatconsequently pricing is still central to rely on economies of scale.consumer choice. However, brandinghas been gaining traction over the pastseveral years with shoppers becomingmore willing to spend that extra amounton quality branded products.Recent transactions M&A activity 12 120 Date Target Description Acquirer Deal Value (US$m) 100 Average deal value $mFeb 12 Natura Cosmetics Lazard Asset n/d 10 Transaction volume Cosméticos S.A. Management LLC (USA) 8 80Oct 11 Bobstore Apparel InBrands 32Sep 11 Descart Indústria Baby diapers Svenska Cellulosa 71 6 60 E Comércio Aktiebolaget (Sweden)May 11 Brinox Kitchenware Southern Cross n/d 4 40 Metalúrgica Group (Argentina)May 11 Ecologie/ Cosmetics Bombril 9 2 20 Nick&VickFeb 11 VR Kidswear Apparel InBrands n/d 0 0 and VR Menswear 2008 2009 2010 2011Jan 11 Perfex (Johnson Household Hypermarcas 17 & Johnson) cleaning Total deal volumeNov 10 Colgate-Palmolive, Soap Hypermarcas 50 Source: Capital IQ and Pom Pom Soap Mergers Alliance Analysis Average deal value $mNov 10 Scalina Hosiery; lingerie The Carlyle Group 160 (USA)Aug 10 Mabesa do Diapers Hypermarcas 195 BrasilDeal Focus - Brazil 9
  11. 11. Mexico Sound fundamentals Brand integration The Mexican consumer goods sector An increasingly common theme in swept through the global economic Mexican consumer oriented M&A downturn unimpeded, experiencing has been for diversified consumer 6% compound annual growth over the companies to buy smaller brands past three years. to then incorporate into their product lines. Consumer growth is expected to at least equal GDP growth which is In October 2010, Genomma Lab “The currently at 4%. Indeed, a rising middle Internacional SAB, a Mexico based class may push growth in consumer developer and marketer of over-the- development goods higher still. Other positive indices counter pharmaceutical and personal priority of include a relatively low inflation rate care products, agreed to acquire the (at 3.14%) and stable consumer Pomada de la Campana, Galaflex, many firms has confidence levels. Moreover, Affair, Vanart and Sante Haircare brands consumer credit is recovering after for a total consideration of US$85m.been outward of late to a sharp contraction in 2009 and is The brands, that reported combinedtake advantage of the expected to reach 2007 levels in 2012. annual sales of US$38m in 2009, will be incorporated into Genomma’s alreadyrapidly growing middle Overall deal volume in consumer goods extensive portfolio of over 90 brands has traditionally been low relative to theclass. Solid macro general market; however, it has beenfundamentals along steadily rising since 2009. Largest luxury marketwith the increase in in Latin Americaconsumer credit, rolled Multinationals investing The luxury goods market is the second in Mexico most important in Mexico after theout by both department mass segment. Indeed, Mexico rates Large multinationals have sought to above Argentina and Brazil with 55% ofand specialist stores, capitalise on concentrated sector the total sales of luxury goods in Latinhas led to a surge in growth. One such firm was Svenska America. According to AC Nielsen, Cellulosa Aktiebolaget, the Swedish 6,4 million Mexicans will have annualMexican consumerism. consumer goods giant and owner of incomes of over US$60,000 by 2030. brands such as Bodyform and Tempo.With this, Mexico In July 2010 it agreed to acquire A number of major international luxury brands rely on the affluent Mexicanremains one of the Copamex S.A, a baby diaper business consumer as much as they do the that targets the Mexican and Central European. Hugo Boss for examplemore attractive American market, for US$50m. The derives c. 15% of its global sales deal involves the rights to the brandsemerging market Tessy Babies and Dry Kids among from Mexico.propositions.” others and will take advantage of the growing Mexican and Central AmericanChristian Garcini Garcia, baby diaper market. Apparel acquisitionSinergia Capital opportunities We expect the trend of Mexican brands being bought with the intention of being integrated into the buying company’s product line to continue. We expect this trend to take place in the apparel sector in particular, where a number of successful local brands have emerged. These include: Deal Focus - Mexico10
  12. 12. Julio: Quality clothing at low prices. It currently has 48 stores and 15 franchises in Mexico. Ivonne: The brand has positioned itself as one of the leading companies in selling fashion and “ The luxury goods market is the second most important in Mexico after the mass accessories to a wide segment of segment. Indeed, the female population. Has recently opened its first stores in the US. Mexico rates above Marsel: It currently has 20 stores Argentina and Brazil in shopping malls across the country, Marsel has been with 55% of the expanding at a fast pace. total sales of luxury Highlife: Clothing for men; one of goods in Latin the market leaders in the sector. America. Andrea: Catalogue sales of shoes with a large share of the Mexican market.In our view the above present a goodopportunity for foreign firms looking toinvest in the infrastructure of some well ”established and potentially high growthMexican brands.Recent transactions M&A activity 7 120 Date Target Description Acquirer Deal Value (US$m) 90 6 Average deal value $mOct 11 Scientific-Atlanta Set-top boxes PCE Paragon 45 80 Transaction volume de Mexico Solutions kft (Hungary) 5 70Aug 11 Moda Holding Footwear Nexxus Capital, n/d 60 S.A.P.I. de C.V. S.C. developer 4Aug 11 Various Brands Various brands Genomma Lab 85 50 Internacional SAB 3 40Jul 11 Toshiba Electronics Just International n/d 2 30 Electromex Ltd. (Taiwan) 20Oct 10 Colgate-Palmolive Personal care Genomma Lab 29 1 (Mexican brands) Interacional SAB 10Jul 10 Copamex, S.A. Personal care Svenska Cellulosa 50 0 0 de C.V. Aktiebolaget (Sweden) 2008 2009 2010 2011Mar 10 Laboratorios KSK Natural products Takashi Tsuru n/d company Kayaba Total deal volumeMar 10 Impco, S. de Household Sylvan Holdings n/d Source: Capital IQ and R.L. de C.V. appliances Pte. Ltd (Singapore) Mergers Alliance Analysis Average deal value $mJan 09 Iconix Brand Various brands New Brands 6 Group, Inc Americas LLC (USA)Aug 08 Barajas y Naipes Leisure equipment Cartamundi NV; n/d de Mexico Copag da Amazônia S.A.Deal Focus - Mexico 11
  13. 13. USA Strategies change on remained relatively constant since 2008 through the end of 2011 macro deterioration at approximately 200 reported As goes the consumer so goes the transactions per annum. While most of consumer products industry and the the deals had undisclosed value and consumers throughout the world are terms, the ones that did disclose still recovering from the local and global exhibited an increased average recession and personal deleveraging. transaction size from a low in 2008 through 2010. This increase in the The US consumers buying behaviour average deal size was reflective of the “The US has fundamentally changed from the financial turmoil in 2008 in which many consumer mid-2000’s and consumer goods of the sellers were "distressed" and manufacturers and the retail channels buyers had limited sources of capital. products M&A will continue to have to adjust to this Average deal size spiked in 2010 as new buying paradigm. activity has there were five US$1bn+ transactions The continued contraction of credit including NBTY and Alberto-Culver forproven to be rather availability to the consumer (be it from US$4bn each, whereas the largest disclosed deal in 2008 was onlyresilient in this volatile credit cards, home equity loans, 401k) US$500m. combined with declining assets,environment. Given dropping consumer confidence and Approximately 13% of the companies increased unemployment, has madethe strong corporate the US consumer more price sensitive, acquired in the US have been bought by a non-US based entity. In 2011,balance sheets, and decrease discretionary spending and there was an increase in cross-border become more willing to consider transactions which was driven by thebacklog of aging alternative channels for key purchases. weak dollar and a desire for Europeanowners of privately-held The consumer goods manufacturers and Chinese companies seeking have also faced a dramatically "foothold" acquisitions in the US.CP companies, we are changing environment in the US.bracing for a strong Rising inflation on the back of monetary stimulus has meant that companies Large deals and hostilesurge of M&A activity have faced rising commodity prices takeoversover the next few years.” while at the same time being pressured VF Corp, one of the leading owners to maintain, if not lower, its retail pricing. Many branded companies of branded apparel companies, addedBrian Mulvaney, faced new competition from private Timberland to its portfolio in June 2011Headwaters MB in a US$2.2bn deal. This valuation was label offerings. In addition, companies remain challenged by tight credit a 40% premium to Timberlands recent markets, a volatile dollar and increasing stock price, 1.2 x revenue and 12.3 x employee benefit costs. EBITDA. Timberland, which was publicly traded but family managed, had suffered a decline in profitability and was facing investor criticism. By being acquired by VF, Timberland’s cost structure should improve and sales will benefit from VF’s global distribution network. VF, which owns such brands as Vans, North Face, JanSport, Reef, Wrangler and Lee has stated that it will continue to look to build its brand portfolio in all of its categories both in the US and overseas. Stable M&A levels Despite volatile economic conditions affecting the consumer space, the annual number of transactions has Deal Focus - USA12
  14. 14. M&A driving company and direct response (e.g. infomercials grow, but brands that fall in the middle and direct mailers) continue to take a with medium quality at full prices willgrowth larger share of the consumer’s wallet, continue to decline.The US consumer goods market is which has required the consumer goods manufacturers to develop Lastly, US companies will have tocomprised of over 7,500 companies of multi-channel strategies. develop ways in which to enter thewhich only 330 are publicly traded and higher growth emerging markets suchjust over 1,000 are private equity Indeed, in order to compete, many as Brazil and China in order to fuelbacked. Of this group, 350 companies companies are challenging their growth and to establish sourcing anddisclosed revenue that totalled traditional business models in order manufacturing internationally in orderUS$323bn, lead by Procter & Gamble to deliver a better experience to the to lower costs and increase capacity.(P&G) with US$79bn and the next nine consumer. Some of these changesaccounting for US$114bn. While the larger companies already include brand building using social media, creating exclusive product have global sales and distributionOf note, the industry growth of the top features for retailers, changing networks, many of the mid-sizecompanies has been nominal with the warranty/return policies, willingness to companies (e.g. sales of $50-500top 10 companies only growing 0.6% offer private label products, entering million) do not. In order to mitigatein three years and 2.2% in five years, new countries and use of alternative the risk of these new market launches,whereas the top 50 companies have channels such as direct-to-consumer, US companies are becoming moregrown 1.5% in three years and 4.6% in multi-level marketing and receptive to joint ventures, acquisitionsfive years. The highest growth category discount chains. or distribution agreements within the top 50 was apparel, with PVH companies either domiciled or(Calvin Klein, Tommy Hilfiger) growing established in those target markets.88% in five years through acquisitions. As has been the case over the last fewMost of the other top 50 companies New strategies and years, this continual need for changingexperienced low or no organic growth new markets strategies will drive M&A activity in theand the few that did have some growth US and internationally.were primarily driven by acquisitions Over the next few years the US(e.g. Jarden). consumer goods market is expected to remain at the low-single digit growth rate, but will have more dramaticChanging shape of the changes within the different consumer sectors and distribution channels.consumer industry We expect to see growth at both endsThe retail distribution channels have of the branded goods spectrum and aevolved quite significantly over the past decline in the middle. Meaning thatfive years. The “bricks & mortar” stores high-end brands like Nike and Coachthat are doing well are the luxury and value brands like Costco’s Kirklandretailers and the discount retailers. and Target’s Cherokee will continue toNon-traditional channels such as onlineRecent transactions M&A activity Date Target Description Acquirer Deal Value 300 300 (US$m) 250 250 Average deal value $mDec 11 Kukdong Apparel Apparel Kukdong Corp. 11 Transaction volume (America) Inc. 200 200Dec 11 Baby Trend, Inc. Juvenile products GIA Investments 45 Corp.Sep 11 JAKKS Pacific Toys Oaktree Capital 608 150 150Jun 11 Timberland Co. Apparel & V.F. Corp. 2,200 100 100 footwearMay 11 Acushnet Recreational FILA (Korea) 1,200 50 50 Company (Titleist) equipmentMay 11 Volcom Apparel PPR SA (France) 607 0 0 2008 2009 2010 2011Jan 11 Rafaella Apparel Apparel Perry Ellis 195 Total deal volumeJan 11 Klipsch Group Consumer Audiovox 232 Source: Capital IQ and electronics Mergers Alliance Analysis Average deal value $mDec 10 Sara Lee Shoe Household SC Johnson 323 Care (Kiwi brand) productsSep 10 Alberto-Culver Personal care The Carlyle Group 3,900 productsDeal Focus - USA 13
  15. 15. China Steady shift to a more Indeed, the past three years has seen M&A targeted at home appliance consumer driven economy electronics firms gather pace; further The Chinese consumer class, riding on deals included the purchase of the wave of constant macroeconomic Shenzhen based United Opto- growth, has been expanding at a Electronics, a firm engaged in the rapid rate. design and manufacturing of projection televisions and related products, by Just seven years ago 4.2 million keypad specialists Karce International households were earning US$10,000 Holdings for US$346m and the majority “China is the a year, that household figure has since stake purchase of Hefei Royalstar most significant risen to just over 20 million and rising. Industrial, by its domestic peer Wuxi Despite this, consumption still only Little Swan for US$78m. prize in the makes up 35% of GDP compared to 70% in the US. It is clear that the consumer consumption capacity of the Chinese Homegrown brands takegoods sector. The has not come close to realising its to the world stage full potential. Indeed, analysts expectmiddle-class in China China’s consumer market to grow to China is home to a number of three times the size of the US marketis increasingly becoming over the next two decades. multibillion dollar brands, some of which have had more exposure toa wealthy one with a China’s 12th five year plan, which runs Western markets than others.growing appetite for until 2015, places an emphasis on The brands range from electronics balancing the economy to be more to sporting goods and top among themconsumer goods. higher-value-add consumer driven is multinational computer firm Levono. and less reliant on cheap exports. The company manufactures andCompanies, both Even with this, China will remain a markets desktop, tablet and notebookdomestic and foreign, relatively frugal state relative to its computers. Currently the worlds western counterparts and saving will number two PC brand, the companywill vie for market remain firmly entrenched in the culture; has already been active in global M&A with its acquisition of IBM’s personalshare through M&A.” an economic dynamic that can only computer division in 2005 being its prove supportive to the long term health of the economy. most high-profile deal. Looking aheadAndre Johnston, it recently stated that it is looking forMergers Alliance overseas acquisitions to expand its nascent mobile device division. Large interest in home appliances The next two biggest non food and drink consumer companies are Anta China has been a fairly active hub of and Li-Ning, both sporting goods consumer goods M&A in recent years firms that design sports apparel and and although there was a contraction equipment under their own brand in 2010, 2011 surpassed the peaks names. Li-Ning surpassed Adidas in both volume and average deal domestically in 2009 to become the value. Interestingly, over half of all second largest sports brand by market transactions over the past three years share (after Nike). In the same year it have been cross-border. bought Hong Kong based sportswear Recent among them was renowned firm Kason Sports for US$24m. Anta Swedish outdoor recreational brand meanwhile has ambitiously declared its Hestra-Handsken’s acquisition of a intention to open 10,000 new stores 50% stake in outdoor sportswear and across China. equipment firm Zhejiang Pinghu Huashen in February 2011 for an undisclosed sum. In the same month French electrical appliances company SEB Internationale acquired a 20% stake in kitchenware appliances brand Zhejiang Supor for US$526m. Deal Focus - China14
  16. 16. Personal care opens Interestingly, there has been notable Monetary policy could outbound involvement as well; Chinaits borders Investment Corporation invested influence M&ADue to its substantial growth prospects US$50m into French beauty and home If the Chinese government stopsone industry that has been more active products firm LOccitane International artificially suppressing its currency andthan most in M&A has been the CF&T during its floatation. allows the RNB to float freely (which(cosmetics, fragrances and toiletries) may happen sooner than anticipatedsegment. due to domestic inflation concerns) theIn December 2010 Coty Inc, the world’s Luxury sensibilities consumer’s purchasing power will rise sharply. Not only will this enable thelargest fragrance company By 2015 China is set to overtake the Chinese to outbid foreign consumersheadquartered in Paris and New York US and Japan to become the world’s on products they themselves make,and privately owned by German holding largest luxury market. Heavy tariffs it will also provide Chinese firms withcompany Joh. A. Benckiser, acquired a levied on certain consumer goods such the additional purchasing power tomajority stake in TJoy Holdings, a as a 50% duty on cosmetics and a participate in outbound M&A moreJiangsu Province based brand that 30% duty on high-end watches are to aggressively.manufactures skin care products, for be repealed with further reductions onUS$400m. Although Tjoy has negligible import tariffs to follow. Such a movemarket share (estimated at 1%) Coty may actually discourage China targetedwas attracted to one of the Chinese M&A by foreign luxury companies asfirms lucrative skin whitening and male home advantage no longer becomes askincare products lines. These products prerequisite to penetrating the market.have been experiencing high doubledigit growth in recent years. Currently, only a small fraction of the population can afford premium goods,In 2008 Johnson & Johnson China most of whom are confined to theInvestment Co, a subsidiary of New major cities, however, prosperityJersey based Johnson & Johnson, and goods are now swelling intobought Beijing Dabao Cosmetics, one the second and third tier cities.of China’s best known cosmetic brands(the firm had previously been majoritystate owned). The purchase has so farfacilitated Johnson & Johnson’s entryinto the Chinese market throughDabao’s 3,000 mainland outlets.Recent transactions M&A activity 60 60 Date Target Description Acquirer Deal Value (US$m) 50 Average deal value $mDec 11 Shanghai Watches Watches Shenzhen Fiyta 7 50 Transaction volume Company Limited Holdings Ltd 40 40Dec 11 Shenzhen Consumer Sichuan Changhong 32 Changhong electronics Electronics GroupNov 11 Yiwu Nengdali Apparel China Fashion n/d 30 30 Garments Co.,Ltd. Holdings Ltd.Aug 11 Parel Cosmetics Ming Fai Holdings 5 20 20 Cosmetics Ltd. LimitedAug 11 BSW Household Electornics Bosch and Siemens 19 10 10 Appliances Home Appliances (Ger)Aug 11 FAB Enterprise Electronics Wizzard Software 15 0 0 2008 2009 2010 2011Mar 11 Zhejiang Putian Household Elica SpA (Italy) 42 Electric appliances Total deal volumeFeb 11 Zhejiang Supor Housewares and SEB SA (France) 526 Source: Capital IQ and specialties Mergers Alliance Analysis Average deal value $mFeb 11 Zhejiang Pinghu Sportswear and Hestra-Handsken n/d Huashen equipment AB (Sweden)Apr 08 United Opto- Electronics Karce International 346 Electronics HoldingsDeal Focus - China 15
  17. 17. India Growing middle class Foreign private equity boosts M&A interest in Indian apparel India is one the world’s most lucrative Disposable income in India is growing consumer markets and there is still at 5% annually; yearly growth of the ample room for expansion in a country apparel sector however is c. 13%. This where, similar to China, consumption figure can be partly attributed to more makes up less than half of the total money being in the hands of young GDP. people and an increase in demand for “Consumer A number of multinational consumer office wear by both men and women. companies giants have had a presence in India for The past three years have seen the decades: Unilever initially entered the growth in apparel reflected in the M&A have often Indian market in 1930 and Procter & market where many of the consumer Gamble commenced its first operations transactions took place. struggled to in the 1950’s. A number of financial funds competedpenetrate the disparate M&A participation in the sector to invest in Genesis Colors, a companyand often volatile although always evident, has increased that owns a variety of premium fashion over the past five years thanks to labels. Investors included L Capital,Indian market as favourable consumer drivers including the private equity arm of luxury high GDP growth, a growing middle conglomerate LVMH, who recentlymodern retail chains class (which is expected to swell to acquired a 40% stake. Previously, UKare relatively weak and around 500 million by 2025) and a based Henderson Global Investors rise in per capita income for rural acquired a 12% stake for US$17m andthe majority of inhabitants. US based venture capital firms Sequoiaconsumer goods are Capital and Mayfield Fund contributed US$26m. The new funds have beensold in traditional High valuations in used to open new branches, market one of its flagship brands, Satya Paul,shops. Entering these personal care and fund future acquisitions.markets requires India’s personal care market is growing In 2010 private equity firms Bain rapidly thanks to the rise in thepowerful independent population’s purchasing power and Capital and TPG Capital purchased undisclosed stakes in Indian kids-weardistribution networks, increasing health awareness. The sector firm Lilliput for US$86m. The new has attracted many overseas cash rich funds will allow one of India’s mosttherefore, most would buyers. Unfortunately, the number recognisable kids-wear brands to of brands for sale has not satisfiedbe better off acquiring demand which has contributed to extend its product range as well as its store footprint. The deal is also seen asor partnering with local the high multiples being paid. a precursor to its initial share offering that is said to be taking place over theestablished brands.” This was illustrated by the bidding next 12 months. war, involving both multinational andSujay Kotak, domestic players, for ParasSinghi Advisors Pharmaceuticals, a household and personal care company. The auction Seeking global coverage was eventually won by UK based Reckitt Benckiser who bid a sizable A growing number of Indian firms are US$725m (price/sales multiple of over seeking international exposure to both 8 x). Reckitt is the worlds largest hedge against domestic competition producer of personal and household and to capitalise on some of the products boasting global brands such lucrative diaspora market. Historically, as Durex and Vanish. As well as Indian firms have sold identical product extending these brands already lines in the targeted overseas markets discernable presence in India, the to the ones sold locally, however, firms acquisition will allow Reckitt to expand are now customising their brand its product line through Paras’ own portfolio to better suit the tastes of extensive portfolio which includes international consumers. M&A has brands such as D’Cold, Moor and helped facilitate the cross-over and one Dermicool. such example was the acquisition of UK based CF&T company Keyline Deal Focus - India16
  18. 18. Brands by Godrej Consumer Products, Industry insight India and through our global operations.the consumer division of the Indian On top of that, we expect a 10%conglomerate. The buy enabled Godrej Name: Vivek Gambhir compounded annual growth rate fromto introduce new product ranges to the Company: Godrej Group acquisitions. This would be financed byUK and Europe as well bring Keyline’s Position: Chief Strategy Officer the surpluses generated each year andbrands to the Indian market. Indeed, by maintaining a debt equity ratio ofGodrej has been one of the world’s about 1:1.most acquisitive consumer companiesover the past three years. A trend that 10 times in 10 years is a compoundedwe expect to continue as firms in annual growth rate of about 27%,emerging markets go out of their which we fully expect to achieve.way to achieve global coverage. Ultimately our growth aspirations are indicative of the Indian consumer market as a whole.”Outlook The Godrej Group is an Indian conglomerate headquartered inThe majority of the rural population will Mumbai, India and has a turnoveremerge from subsistence consumption of US$2.6bn. Godrej Consumer “At Godrej Consumer Products weto a level that consistently consumes Products is a leader among Indias have a financial goal of what we calltailored, though still affordable, FMCG companies, with leading 10x10, which essentially means 10products. The market potential in terms household and personal care times the size in 10 years. We expectof volume for mass premium products products. to grow organically by around 15-and FMCG’s is considerable. We 20% over the next 10 years both inbelieve this holds true for productsin beauty and skin care products inparticular and this is where we expectfurther M&A activity to take place overthe next three years.Despite its eclectic language structureand vast landmass, the current Indianconsumer climate is relativelyhomogenous. Nonetheless, a rise inpurchasing power and an increase inscale will necessitate more complexbusiness models with regards tobranding and general operations.An effort than can be facilitated byforeign expertise.Recent transactions M&A activity Date Target Description Acquirer Deal Value 35 100 (US$m) 90 30 Average deal value $mSep 11 Genesis Colors Apparel L Capital, Henderson 43 80 Transaction volume Mayfield (Various) 25 70Jun 11 Darling Group Hair care Godrej Consumer 100 20 60 Holdings Products Ltd. 50Apr 11 Henkel India Ltd. Fabric care Jyothy 170 Laboratories Ltd. 15 40Apr 11 Weekender Apparels for Madhusudan 21 10 30 Clothing children Securities (Vietnam) 20Jan 11 Maya Appliances Household Koninklijke Philips n/d 5 Industry appliances Electronics (Egypt) 10Dec 10 Naturesse Hair care Godrej Consumer n/d 0 0 Consumer Care Products 2008 2009 2010 2011Dec 10 Paras Healthcare Reckitt Benckiser 725 Pharmaceuticals (UK) Total deal volumeDec 10 Essence Consumer Fabric care Godrej Consumer n/d Source: Capital IQ and Care Products Products Mergers Alliance Analysis Average deal value $mDec 10 Bachi Shoes Footwear Tata International 26 India PrivateSep 10 Lilliput Kids apparel Bain Capital, 86 TPG Capital (USA)Deal Focus - India 17