Report

Consumer sector M&A remains robust

Trefor Griffith Trefor Griffith

The consumer sector is constantly reinventing itself to meet the evolving needs of an increasingly discerning and demanding customer base. 

As technology advances, the expectation for a swifter, smoother user experience that promises cost-effective quality while also promoting sustainable practices presents businesses with a huge challenge.

This disruption paves the way for an array of new entrants, subverting tried and tested models and nipping at the heels of more established players. And we haven’t even mentioned the ongoing challenges and uncertainty thrown up by the UK’s withdrawal from the EU.

All of this combines to create an increasingly complex environment in which to operate. And, yet, despite the political and macroeconomic headwinds, M&A activity in the consumer sector broadly remains strong.

A tale of two halves

While Brexit has inevitably caused some businesses to postpone or amend their strategic agendas, it has not affected M&A in the consumer sector as much as initially feared. In fact, Brexit has served as a catalyst in some instances, prompting overseas companies to establish or strengthen their UK footprints before the withdrawal deadline. 

In particular, the food and beverage (F&B) and travel, tourism and leisure (TTL) sectors showed a pick-up in outbound M&A during 2018, as UK companies seek to increase their routes to market and develop export channels.

The retail and hospitality sectors continue to be hardest hit by economic climate and changing consumer trends, with high-profile casualties across both sectors.

Those less able to quickly adapt to consumer preference for an online offering have suffered most, predominantly retail players with bricks and mortar portfolios. In contrast, niche operators that do have a strong online presence, and offer a value, premium or artisan offering are thriving.

Likewise in the hospitality sector, brand fatigue and the rise in online delivery have contributed to the downfall of many high-profile casual dining groups.

Promoting customer experience

Despite reduced consumer confidence and tighter budgets, the trend toward experiential offerings is holding strong. Holidays are proving especially popular and travel companies that offer tailored, activity-based or stay-cation options are doing particularly well.

Alongside the demand for experiential, it's the small and agile disruptors that are winning the hearts, minds and pennies of the consumer. Brands that address the wellness theme continue to prosper: the rise in veganism and demand for plant-based proteins shows no let up. Large fast-moving consumer goods groups continue to review their portfolios to ensure they are relevant and divest heritage parts of their business. At the same time, they are snapping up the small disruptors challenging their business.

The appetite for continued M&A

Where businesses are garnering a strong consumer base, there is an increased M&A appetite, from both trade and private equity (PE) investors. Successful UK brands continue to attract both international trade and PE appetite, across all deal sizes.

But the ongoing uncertainty surrounding Brexit is unsurprisingly causing investors and consumers to tread carefully. This reluctance to commit to investment may result in slower progress for the sector, but, one thing is certain: deal-makers, just like consumers, will not go away.

Read more about our latest consumer credentials and more in our annual leading the way report. If you’re considering strategic options for 2019 and beyond, please contact Trefor Griffith