Kearney predicts investors will turn toward small and midsize assets in 2020

Kearney today released its annual Consumer and Retail M&A report, Time to Reset, Reposition, and Win, which explores the current and future deal landscape for consumer product and retail companies. In light of a landscape structurally transformed at breathtaking speed due to the effects of COVID-19, the report projects massive consolidation within and across the consumer and retail sectors, where businesses with underlying weaknesses face tough choices.

Time to Reset, authored by Kearney partners Bahige El-Rayes and Robert Haas, looks at whether and which of last year’s investment trends still hold true despite, or perhaps because of, the economic impact of the pandemic.

“Despite the likelihood of economic softening, we fully expect to continue to see an active M&A market. But the old rules no longer apply. 2020 will be a buyer’s market that provides an unprecedented opportunity to acquire quality consumer and retail assets at corrected valuations,” noted Bahige El-Rayes, Kearney partner in the consumer practice, and co-author of the report. “While 2019 was all about strategically filling in gaps in portfolios, COVID-19 is turning the landscape on its head. Acquisition targets are likely to be abundant, valuations measured, and acquirers must not only factor changed consumer behaviours into their due diligence, but also need to consider how this shift will affect post-pandemic demand.”

As much forward-looking as retrospective, the report is a benchmarking tool for the deal-making ecosystem. It examines deal drivers, shifts in deal size, valuations and volumes, and whether the anticipated acquirers will comprise mainly of financial sponsors, strategic, or perhaps non-traditional players. The study also takes a close look at how previous deal-driving factors such as digital capabilities and direct-to-consumer play in a world deeply changed by shelter-in-place orders, restrictions on physical gatherings, and increased debt.

When looking at how the business of mergers and acquisitions will change in this new, post-pandemic landscape, Kearney found that 70 percent of executives believe this is a good time to invest. Companies with M&A investment in a downturn returned 52 percent more Total Shareholder Returns (TSR), and the Private Equity cash situation reached a peak of USD 1.45 trillion, pre-COVID-19, with an expectation that 2020 will be a big year for investment.

The responses of executives surveyed for the report further reflect the changing nature of post-pandemic M&A, with an emphasis toward the ability to meet the challenging times ahead.

“In the near term, we expect to see a dynamic M&A market with a range of opportunities – including the usual recession deals like distressed sales and carve-outs of select premium assets; but more notably we also foresee strategic transactions to acquire business model innovation in areas such as customer access, supply chain and product disruption,” noted Robert Haas, Kearney’s Private Equity and M&A global practice lead. and co-author of the report.

Despite the deepening crisis affecting the world’s physical and financial health, opportunities for corporate M&A deals are likely to abound. To remain profitable and grow in this new environment, companies and their leadership must first and foremost understand the landscape, including its players, customers and circumstances.