Global Consumer Goods Sector Report 2012
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Sector Report 2012 Contents
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 40
Consumer Goods - Contents 1 Sector Report 2012 Report
About the report
This sector report was edited by For more information on this Other sector reports available Andre 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 Report interviews with our sector experts from each member firm within the Andre Johnston Global Engineering Review Mergers Alliance partnership. We Mergers Alliance Global Food & Drink also surveyed owners and senior +44 207 881 2967 executives within consumer good [email protected] European Plastic Packaging sector organisations and private equity investors worldwide.
Deal Focus
Within each country’s Deal Focus overview of the consumer goods Key terminology: FMCG (Fast we 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, fragrances deals and trends within the commenting on the key trends and toiletries) y-o-y (year on consumer goods sector with an and the factors influencing M&A. year), CAGR (Compound annual emphasis on branded goods. growth rate) BRIC (Brazil, China, We provide our own insight on India, Russia). All deal values are We have included tables of how we think the market might in US dollars unless otherwise recent transactions where the play out over the coming 18 stated. target company is located in months and attempt to identify the country under review. key investment opportunities. Additionally, we provide an
Disclaimer 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 firms This publication contains general information action that may affect you or your business. or other related entity shall have any liability and is not intended to be comprehensive nor Before taking any such decision you should to any person or entity which relies on the to 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 consequential publication 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 Sector Report 2012 Introduction
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 value activity in the sector has been product company growth; why in your business, our international progressively rising since the multi-channel sales strategies are advisors are in a unique position nadir of the global downturn in driving investment activity and to help you. Our member firms 2009. The report highlights that how companies at the value, have a prominent position in despite very challenging markets premium and luxury ends of boardrooms across the world and transactions are being completed consumer markets are benefiting are renowned for delivering an in many different consumer from those operating in the award-winning partner-led segments and geographies. middle of the market. Our work advisory service with seamless In addition a large proportion also highlights the level of private international cooperation. of these deals are cross-border equity investment in the sector transactions reflecting the and how mid-cap companies and We hope you find our report increasingly global characteristics global corporates are shaping enlightening and welcome any of 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 ideally the key issues facing the sector in placed to help you. Whether you
Andy Currie Chairman of Mergers Alliance Managing Partner of Catalyst Corporate Finance LLP + 44 207 881 2960 [email protected]
Consumer Goods - Introduction 3 Sector Report 2012 Report 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% e 110 c e n
100 t
e 9% a d i
90 R f t n 8% 80 n o e C 70 m r
7% y e
60 o l m p u 50 6% s m n 40 e o 5% n C 30 U 20 4%
7 7 8 8 8 9 9 0 0 0 1 1 2 0 0 0 0 0 0 0 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 r g n n v r p b y c y t n a u a u o p e e a e a c a M A J J N A S F M D M O J
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
e 1000 m u l o
v 800 n o i 600 t c a
s 400 n a r
T 200 0 2008 2009 2010 2011
Consumer Goods - Report Highlights 4 Emerging markets rising
Consumer goods companies have recognised that emerging markets are a requisite for growth rather than just a complementary source of revenue. We expect this corporate focus to drive more Western investment into emerging economies directly through acquisitions or joint ventures.
Our research shows the rise of consumer sector M&A in emerging markets and in particular Asia. Since 2008, the proportion of M&A in these economies has increased by over a fifth to 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 & Caribbean e m
u 70 l o
V 60 l a
e 50 D 40 A & 30 M 20 25% 10 0 M&A Volume 2009 M&A Volume 2011
Rest of World Europe and North America
The deal flow is two way. Indian consumer companies Godrej and Gitanjali have been among the ten most active acquirers globally over the past three years, having completed 15 deals between them. As with other BRIC headquartered multinationals, they have set ambitious growth plans and have acquired branded goods companies in both developed and other developing countries.
Consumer Goods - Report Highlights 5 Sector Report 2012 Report 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 the included high street retail, online, mail distribution of consumer branded order and television distribution. Online products in most developed countries. main growth strategies shopping accounted for the majority of This trend has continued through the “for consumer overall retail sales growth in a number economic downturn although the focus of developed markets during 2011 and has moved away from single channel companies domiciled is set to continue to dominate growth. retail distribution to multi-channel distributed products. in mature economies. 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 We expect to see the luxury and ceiling in terms of organic growth due premium brand conglomerates to the mature and consolidated nature continue to consolidate the market of their respective markets, will be and provide the best exit route for compelled to pursue globalisation investors, 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 in Companies in lower emerging markets however, we expect growth, mature to see more mid sized businesses economies need acquire in BRIC countries as the risks to acquire become more understood and the M&A approach more accepted. M&A is now one of the main growth strategies for consumer companies domiciled in mature economies. Companies that have reached a
Consumer power One billion new middle class consumers A consumer tidal wave is on its way in the form of the BRIC countries. 1600 1,350 Whilst the economies in each country vary significantly, their consumer 1400 markets are characterised by a largely untapped rural consumer population, 1200 expanding middle classes and the high income disparities between the rural 1000 and urban populations. It is estimated China that one billion more consumers will 800 emerge in less than 15 years. 600 Whilst the consumption of basic goods such as food, beverages and clothing 250 400 have grown most in line with GDP, the India consumption mix is changing. Certain 200 sub-sectors, such as skin-care in China and India and cosmetics and baby Brazil Others diapers in Brazil, are growing faster 0 than GDP. As a result, competition Year 2009 Year 2025 for local brands is intensifying and acquirers are paying high premiums as Source: McKinsey & Company consolidation takes place. We expect premiums to remain high as demand for these brands and companies exceed supply.
Consumer Goods - Report Highlights 7 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 Arezzo, Brazil’s leading footwear in consumer employment and rising income levels. company that holds an 11% market This social migration process is income and share and operates through franchises reaching over 30 million people who are as well as its own stores, went public in the emergence 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%) consumers, the The upper, middle and lower-middle will be used to acquire smaller brands. (or A-B-C) income segments now It has been reported that other local Brazilian consumer represent 74% of the population vs. footwear companies are also currently 49% in 2005 thanks to the sharp seeking acquisitions both domestically market has attracted increase in lower income consumer and overseas. Expect substantial global attention. spending power. A strong commitment consolidation activity in this sub-sector to economic stability, along with a over the next 18 months. Despite substantial structurally sound financial sector, has contributed to consumer confidence consolidation in recent and capital expansion which should years there are still have a positive effect on general economic growth. plenty of M&A opportunities.” Population increase Felipe Monaco, driving diaper market Broadspan 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 Indeed, women are quickly becoming Due to the highly fragmented nature of a major economic force and are the apparel market in particular (the top expected to have a profound effect five players hold just 16% of the total on consumption habits. The cosmetics, market share) we expect the growing fragrances and toiletries (CF&T), eagerness to buy brands rather than footwear and apparel segments generic to drive M&A directed at are all expected to be boosted. emerging Brazilian clothing brands. Closer to home, in May 2011, Latin American private equity fund Southern Cross acquired a controlling stake in E-commerce maturing Brinox, a kitchenware manufacturer Local consumer firms that have with revenues of US$80m in 2010. traditionally sold their brands in retail Apart from the major players, the stores are expanding into e-commerce, kitchenware market is highly a channel growing at over 30% per fragmented and Southern Cross hopes annum. Consequently, we anticipate to benefit by continuing its buy and moves by consumer firms looking to build strategy - acquiring other expand their distribution network to associated brands through Brinox. acquire domestically domiciled online retail specialists. Overall, the Brazilian consumer market Consumers switching has experienced a boom in recent to brands years, however several inefficiencies still exist, such as fragmented markets. Although Brazil is becoming This should nonetheless encourage increasingly prosperous, the consumer major consumer players, foreign base is still composed of mostly lower and domestic, that have their own to middle income consumers; distribution channels and that consequently pricing is still central to rely on economies of scale. consumer choice. However, branding has been gaining traction over the past several years with shoppers becoming more willing to spend that extra amount on quality branded products.
Recent transactions M&A activity
120 Date Target Description Acquirer Deal Value 12 (US$m) 100
10 m Feb 12 Natura Cosmetics Lazard Asset n/d $ e e
Cosméticos S.A. Management LLC (USA) m u u l
l 8 80
Oct 11 Bobstore Apparel InBrands 32 a o v v l n 60 a e o 6
Sep 11 Descart Indústria Baby diapers Svenska Cellulosa 71 i d t c
E Comércio Aktiebolaget (Sweden) e a g
s 4 40 May 11 Brinox Kitchenware Southern Cross n/d a n r a e
Metalúrgica Group (Argentina) r v T May 11 Ecologie/ Cosmetics Bombril 9 2 20 A Nick&Vick Feb 11 VR Kidswear Apparel InBrands n/d 0 0 and VR Menswear 2008 2009 2010 2011 Jan 11 Perfex (Johnson Household Hypermarcas 17 & Johnson) cleaning Total deal volume Nov 10 Colgate-Palmolive, Soap Hypermarcas 50 Source: Capital IQ and Pom Pom Soap Mergers Alliance Analysis Average deal value $m Nov 10 Scalina Hosiery; lingerie The Carlyle Group 160 (USA) Aug 10 Mabesa do Diapers Hypermarcas 195 Brasil
Deal Focus - Brazil 9 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 been outward of late to consumer credit is recovering after for a total consideration of US$85m. a sharp contraction in 2009 and is The brands, that reported combined take advantage of the expected to reach 2007 levels in 2012. annual sales of US$38m in 2009, will be incorporated into Genomma’s already rapidly growing middle Overall deal volume in consumer goods extensive portfolio of over 90 brands has traditionally been low relative to the class. Solid macro general market; however, it has been fundamentals along steadily rising since 2009. Largest luxury market with the increase in in Latin America consumer credit, rolled Multinationals investing The luxury goods market is the second in Mexico most important in Mexico after the out by both department mass segment. Indeed, Mexico rates and specialist stores, Large multinationals have sought to above Argentina and Brazil with 55% of capitalise on concentrated sector the total sales of luxury goods in Latin has 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 annual Mexican consumerism. consumer goods giant and owner of incomes of over US$60,000 by 2030. With this, Mexico brands such as Bodyform and Tempo. A number of major international luxury In July 2010 it agreed to acquire brands rely on the affluent Mexican remains 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 example more attractive American market, for US$50m. The derives c. 15% of its global sales deal involves the rights to the brands from Mexico. emerging market Tessy Babies and Dry Kids among propositions.” others and will take advantage of the growing Mexican and Central American Christian Garcini Garcia, baby diaper market. Apparel acquisition Sinergia Capital opportunities We expect the trend of Mexican brands being bought with the intention of being integrated into the buying company’s product line to continue. We expect this trend to take place in the apparel sector in particular, where a number of successful local brands have emerged. These include:
Deal Focus - Mexico 10 Julio: Quality clothing at low prices. The luxury goods It currently has 48 stores and 15 franchises in Mexico. market is the second Ivonne: The brand has positioned “most important in itself as one of the leading companies in selling fashion and Mexico after the mass accessories to a wide segment of segment. Indeed, the female population. Has recently opened its first stores in the US. Mexico rates above Marsel: It currently has 20 stores Argentina and Brazil in shopping malls across the country, Marsel has been with 55% of the expanding at a fast pace. total sales of luxury Highlife: Clothing for men; one of goods in Latin the market leaders in the sector . America. Andrea: Catalogue sales of shoes with a large share of the Mexican market. In our view the above present a good ” opportunity for foreign firms looking to invest in the infrastructure of some well established and potentially high growth Mexican brands.
Recent transactions M&A activity
120 Date Target Description Acquirer Deal Value 7 (US$m) 90 6 Oct 11 Scientific-Atlanta Set-top boxes PCE Paragon 45 80 m $ e e de Mexico Solutions kft (Hungary) m 5
70 u u l l
Aug 11 Moda Holding Footwear Nexxus Capital, n/d a o
60 v v
S.A.P.I. de C.V. S.C. developer 4 l n 50 a e o
Aug 11 Various Brands Various brands Genomma Lab 85 i d t 3 c
Internacional SAB 40 e a g s
Jul 11 Toshiba Electronics Just International n/d a n 2 30 r a e
Electromex Ltd. (Taiwan) r v
T 20 Oct 10 Colgate-Palmolive Personal care Genomma Lab 29 1 A (Mexican brands) Interacional SAB 10 Jul 10 Copamex, S.A. Personal care Svenska Cellulosa 50 0 0 de C.V. Aktiebolaget (Sweden) 2008 2009 2010 2011 Mar 10 Laboratorios KSK Natural products Takashi Tsuru n/d company Kayaba Total deal volume Mar 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 $m Jan 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 USA Strategies change on remained relatively constant since macro deterioration 2008 through the end of 2011 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 The US consumers buying behaviour average deal size was reflective of the 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 activity has new buying paradigm. there were five US$1bn+ transactions The continued contraction of credit including NBTY and Alberto-Culver for proven to be rather availability to the consumer (be it from US$4bn each, whereas the largest resilient in this volatile credit cards, home equity loans, 401k) disclosed deal in 2008 was only combined with declining assets, US$500m. environment. Given dropping consumer confidence and Approximately 13% of the companies the strong corporate increased unemployment, has made acquired in the US have been bought the US consumer more price sensitive, 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 the backlog of aging alternative channels for key purchases. weak dollar and a desire for European owners of privately-held The consumer goods manufacturers and Chinese companies seeking CP companies, we are have also faced a dramatically "foothold" acquisitions in the US. changing environment in the US. bracing for a strong Rising inflation on the back of monetary stimulus has meant that companies Large deals and hostile surge of M&A activity have faced rising commodity prices takeovers over the next few years.” while at the same time being pressured to maintain, if not lower, its retail VF Corp, one of the leading owners of branded apparel companies, added Brian Mulvaney, pricing. Many branded companies Timberland to its portfolio in June 2011 Headwaters MB faced new competition from private label offerings. In addition, companies in a US$2.2bn deal. This valuation was 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 - USA 12 M&A driving company and direct response (e.g. infomercials grow, but brands that fall in the middle growth and direct mailers) continue to take a with medium quality at full prices will larger share of the consumer’s wallet, continue to decline. The US consumer goods market is which has required the consumer Lastly, US companies will have to comprised of over 7,500 companies of goods manufacturers to develop develop ways in which to enter the which only 330 are publicly traded and multi-channel strategies. higher growth emerging markets such just over 1,000 are private equity Indeed, in order to compete, many as Brazil and China in order to fuel backed. Of this group, 350 companies companies are challenging their growth and to establish sourcing and disclosed revenue that totalled traditional business models in order manufacturing internationally in order US$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 changes accounting for US$114bn. include brand building using social While the larger companies already have global sales and distribution Of note, the industry growth of the top media, creating exclusive product networks, many of the mid-size companies has been nominal with the features for retailers, changing companies (e.g. sales of $50-500 top 10 companies only growing 0.6% warranty/return policies, willingness to million) do not. In order to mitigate in three years and 2.2% in five years, offer private label products, entering the risk of these new market launches, whereas the top 50 companies have new countries and use of alternative US companies are becoming more grown 1.5% in three years and 4.6% in channels such as direct-to-consumer, receptive to joint ventures, acquisitions five years. The highest growth category multi-level marketing and or distribution agreements with in the top 50 was apparel, with PVH discount chains. companies either domiciled or (Calvin Klein, Tommy Hilfiger) growing established in those target markets. 88% in five years through acquisitions. As has been the case over the last few Most of the other top 50 companies New strategies and years, this continual need for changing experienced low or no organic growth new markets strategies will drive M&A activity in the and the few that did have some growth US and internationally. were primarily driven by acquisitions Over the next few years the US (e.g. Jarden). consumer goods market is expected to remain at the low-single digit growth rate, but will have more dramatic Changing shape of the changes within the different consumer consumer industry sectors and distribution channels. We expect to see growth at both ends The retail distribution channels have of the branded goods spectrum and a evolved quite significantly over the past decline in the middle. Meaning that five years. The “bricks & mortar” stores high-end brands like Nike and Coach that are doing well are the luxury and value brands like Costco’s Kirkland retailers and the discount retailers. and Target’s Cherokee will continue to Non-traditional channels such as online
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 300 300 (US$m) 250 250 Dec 11 Kukdong Apparel Apparel Kukdong Corp. 11 m $ e
(America) Inc. e m u u l
l 200 200
Dec 11 Baby Trend, Inc. Juvenile products GIA Investments 45 a o v v
Corp. l n 150 a e o 150
Sep 11 JAKKS Pacific Toys Oaktree Capital 608 i d t c e a g s 100 100 Jun 11 Timberland Co. Apparel & V.F. Corp. 2,200 a n r a e
footwear r v T May 11 Acushnet Recreational FILA (Korea) 1,200 50 50 A Company (Titleist) equipment May 11 Volcom Apparel PPR SA (France) 607 0 0 2008 2009 2010 2011 Jan 11 Rafaella Apparel Apparel Perry Ellis 195 Total deal volume Jan 11 Klipsch Group Consumer Audiovox 232 Source: Capital IQ and electronics Mergers Alliance Analysis Average deal value $m Dec 10 Sara Lee Shoe Household SC Johnson 323 Care (Kiwi brand) products Sep 10 Alberto-Culver Personal care The Carlyle Group 3,900 products
Deal Focus - USA 13 China Steady shift to a more Indeed, the past three years has consumer driven economy seen M&A targeted at home appliance 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 “China is the households were earning US$10,000 Holdings for US$346m and the majority 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 consumer to 70% in the US. It is clear that the consumption capacity of the Chinese Homegrown brands take goods sector. The has not come close to realising its full potential. Indeed, analysts expect to the world stage middle-class in China China’s consumer market to grow to China is home to a number of three times the size of the US market is increasingly becoming multibillion dollar brands, some of over the next two decades. a wealthy one with a which have had more exposure to 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 them consumer goods. higher-value-add consumer driven is multinational computer firm Levono. Companies, both and less reliant on cheap exports. The company manufactures and Even with this, China will remain a markets desktop, tablet and notebook domestic and foreign, relatively frugal state relative to its computers. Currently the world's western counterparts and saving will number two PC brand, the company will vie for market remain firmly entrenched in the culture; has already been active in global M&A share through M&A.” an economic dynamic that can only with its acquisition of IBM’s personal prove supportive to the long term computer division in 2005 being its most high-profile deal. Looking ahead Andre Johnston, health of the economy. it recently stated that it is looking for Mergers Alliance overseas acquisitions to expand its Large interest in home nascent mobile device division. 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 - China 14 Personal care opens Interestingly, there has been notable Monetary policy could its borders outbound involvement as well; China influence M&A Investment Corporation invested Due to its substantial growth prospects US$50m into French beauty and home If the Chinese government stops one industry that has been more active products firm L'Occitane International artificially suppressing its currency and than 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 anticipated segment. due to domestic inflation concerns) the Luxury sensibilities consumer’s purchasing power will rise In December 2010 Coty Inc, the world’s sharply. Not only will this enable the largest fragrance company By 2015 China is set to overtake the Chinese to outbid foreign consumers headquartered 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 with company Joh. A. Benckiser, acquired a levied on certain consumer goods such the additional purchasing power to majority stake in TJoy Holdings, a as a 50% duty on cosmetics and a participate in outbound M&A more Jiangsu Province based brand that 30% duty on high-end watches are to aggressively. manufactures skin care products, for be repealed with further reductions on US$400m. Although Tjoy has negligible import tariffs to follow. Such a move market share (estimated at 1%) Coty may actually discourage China targeted was attracted to one of the Chinese M&A by foreign luxury companies as firm's lucrative skin whitening and male home advantage no longer becomes a skincare products lines. These products prerequisite to penetrating the market. have been experiencing high double digit growth in recent years. Currently, only a small fraction of the population can afford premium goods, In 2008 Johnson & Johnson China most of whom are confined to the Investment Co, a subsidiary of New major cities, however, prosperity Jersey based Johnson & Johnson, and goods are now swelling into bought Beijing Dabao Cosmetics, one the second and third tier cities. of China’s best known cosmetic brands (the firm had previously been majority state owned). The purchase has so far facilitated Johnson & Johnson’s entry into the Chinese market through Dabao’s 3,000 mainland outlets.
Recent transactions M&A activity
60 Date Target Description Acquirer Deal Value 60 (US$m) 50
50 m
Dec 11 Shanghai Watches Watches Shenzhen Fiyta 7 e $ m Company Limited Holdings Ltd e u u l 40 40 l o Dec 11 Shenzhen Consumer Sichuan Changhong 32 a v v
Changhong electronics Electronics Group l n a
o 30 i 30 e
Nov 11 Yiwu Nengdali Apparel China Fashion n/d t d c
Garments Co.,Ltd. Holdings Ltd. e a s 20 20 g n Aug 11 Parel Cosmetics Ming Fai Holdings 5 a r a r Cosmetics Ltd. Limited e T v
Aug 11 BSW Household Electornics Bosch and Siemens 19 10 10 A Appliances Home Appliances (Ger) Aug 11 FAB Enterprise Electronics Wizzard Software 15 0 0 2008 2009 2010 2011 Mar 11 Zhejiang Putian Household Elica SpA (Italy) 42 Electric appliances Total deal volume Feb 11 Zhejiang Supor Housewares and SEB SA (France) 526 Source: Capital IQ and specialties Mergers Alliance Analysis Average deal value $m Feb 11 Zhejiang Pinghu Sportswear and Hestra-Handsken n/d Huashen equipment AB (Sweden) Apr 08 United Opto- Electronics Karce International 346 Electronics Holdings
Deal Focus - China 15 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 office wear by both men and women. “Consumer A number of multinational consumer 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 competed penetrate the disparate M&A participation in the sector to invest in Genesis Colors, a company and 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 modern retail chains high GDP growth, a growing middle conglomerate LVMH, who recently class (which is expected to swell to acquired a 40% stake. Previously, UK are 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 and the majority of inhabitants. US based venture capital firms Sequoia consumer goods are Capital and Mayfield Fund contributed US$26m. The new funds have been sold in traditional High valuations in used to open new branches, market personal care one of its flagship brands, Satya Paul, shops. Entering these and fund future acquisitions. India’s personal care market is growing markets requires In 2010 private equity firms Bain rapidly thanks to the rise in the Capital and TPG Capital purchased powerful independent population’s purchasing power and undisclosed stakes in Indian kids-wear increasing health awareness. The sector distribution networks, firm Lilliput for US$86m. The new has attracted many overseas cash rich funds will allow one of India’s most buyers. Unfortunately, the number therefore, most would recognisable kids-wear brands to of brands for sale has not satisfied extend its product range as well as its be better off acquiring demand which has contributed to store footprint. The deal is also seen as the high multiples being paid. or partnering with local a precursor to its initial share offering established brands.” This was illustrated by the bidding that is said to be taking place over the war, involving both multinational and next 12 months. Sujay Kotak, domestic players, for Paras Singhi 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 world's 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 - India 16 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 from to introduce new product ranges to the Company: Godrej Group acquisitions. This would be financed by UK and Europe as well bring Keyline’s Position: Chief Strategy Officer the surpluses generated each year and brands to the Indian market. Indeed, by maintaining a debt equity ratio of Godrej has been one of the world’s about 1:1. most acquisitive consumer companies over the past three years. A trend that 10 times in 10 years is a compounded we 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 in The majority of the rural population will Mumbai, India and has a turnover emerge from subsistence consumption “At Godrej Consumer Products we of US$2.6bn. Godrej Consumer to a level that consistently consumes have a financial goal of what we call Products is a leader among India's tailored, though still affordable, 10x10, which essentially means 10 FMCG companies, with leading products. The market potential in terms times the size in 10 years. We expect household and personal care of volume for mass premium products to grow organically by around 15- products. and FMCG’s is considerable. We 20% over the next 10 years both in believe this holds true for products in beauty and skin care products in particular and this is where we expect further M&A activity to take place over the next three years. Despite its eclectic language structure and vast landmass, the current Indian consumer climate is relatively homogenous. Nonetheless, a rise in purchasing power and an increase in scale will necessitate more complex business models with regards to branding and general operations. An effort than can be facilitated by foreign expertise.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 35 100 (US$m) 90 30 m
Sep 11 Genesis Colors Apparel L Capital, Henderson 43 e 80 $ m Mayfield (Various) 25 e
u 70 u l l o Jun 11 Darling Group Hair care Godrej Consumer 100 a v 60 v
Holdings Products Ltd. 20 l n a
o 50 i e
Apr 11 Henkel India Ltd. Fabric care Jyothy 170 t d c 15 40 Laboratories Ltd. e a s g n Apr 11 Weekender Apparels for Madhusudan 21 30 a r
a 10 r Clothing children Securities (Vietnam) e T 20 v Jan 11 Maya Appliances Household Koninklijke Philips n/d 5 A Industry appliances Electronics (Egypt) 10 Dec 10 Naturesse Hair care Godrej Consumer n/d 0 0 Consumer Care Products 2008 2009 2010 2011 Dec 10 Paras Healthcare Reckitt Benckiser 725 Pharmaceuticals (UK) Total deal volume Dec 10 Essence Consumer Fabric care Godrej Consumer n/d Source: Capital IQ and Care Products Products Mergers Alliance Analysis Average deal value $m Dec 10 Bachi Shoes Footwear Tata International 26 India Private Sep 10 Lilliput Kids apparel Bain Capital, 86 TPG Capital (USA)
Deal Focus - India 17 Japan Factors determining M&A as deal value plunged briefly once again reflecting the uncertainty Major economic drivers of M&A in surrounding the after-effects of the the consumer goods sector in Japan earthquake. In 2011, Japanese include demographics, deflation and corporations turned to outbound M&A the strong yen to name a few. as a risk diversification measure and to According to the 2010 census, the take advantage of the strengthening population of Japan in 2010 was 128 yen against major foreign currencies. million, virtually the same as in 2005. “The flat The percentage of the population aged 65 and over reached 23%, the highest Reorganisation of Japanese Japanese in the world, followed by Germany and electronics takes place population Italy at 20%. Mature and shrinking markets in Japan have led to The much predicted reorganisation of growth and consolidation among domestic Japan’s consumer electronics industry shrinking consumer consumer goods companies. Deflation was realised in 2008 with the start of in Japan has created price competition the acquisition of Sanyo Electric by goods market in Japan putting pressure on margins, further Panasonic Corporation. is underpinning M&A forcing players to consolidate to find The initial 50.2% stake in the listed cost synergies. The strong yen has also Sanyo Electric amounted to over activity in this sector. levelled the domestic playing field US$12bn. With major electric attracting foreign global players to the companies like Hitachi, Toshiba and We expect to see more market. Global consumer brands such Mitsubishi surging domestically, Sanyo consolidation of as H&M and Zara in apparel and Ikea could not compete by itself in many of in furniture have been successful its product areas. In 2011, Haier Group marginal local in Japan. Company of China, acquired nine consumer products At the same time these factors have subsidiaries of Sanyo which mainly also been drivers for outbound M&A produced washing machines and companies along with as Japanese consumer companies refrigerators in Japan and Asia. MBOs and private seek faster growing markets abroad. M&A was not limited to domestic players seeking consolidation. In 2008, equity investment, while Bain Capital saw a brand enhancing the stronger companies Great East Japan opportunity in the Japanese audio earthquake impacts M&A electronics market by acquiring the look abroad to the Tokyo Stock Exchange listed D&M Prior to the impact of the Lehman Holdings for US$686m. Bain purchased higher growth markets shock, Japan saw a number of major the stakes of RHJ International and in the BRICs, South mid and large-sized consumer deals. Phillips and D&M was delisted from Panasonic acquired Sanyo electric in a the stock exchange. D&M holds audio East Asia and Africa.” deal worth US$12bn. Moreover, foreign electronic brands such as Denon, buyers made selective acquisitions Marantz, and McIntosh. Tomoki Tanaka, such as Newell Rubbermaids purchase IBS Yamaichi Securities Co Ltd of the baby stroller company Aprica. In 2009 consumer sector deals declined Strong yen driving foreign on the back of the market uncertainty following the global credit crunch. expansion In 2010 deal volumes and values Given the strong yen and healthy cash quickly rebounded from a realisation balances, Japanese corporations are that the consumer market was relatively increasingly seeking M&A opportunities unaffected compared to other in growing markets outside Japan to developed economies. However, this build up existing overseas networks in changed dramatically in March 2011 Europe and North America and diversify with the Great East Japan earthquake their brand offerings.
Deal Focus - Japan 18 In sportswear, athletic shoe than increasing their presence by sought alliances: Pioneer, a former manufacturer Asics Corporation establishing their own natural cosmetics television manufacturer, has made acquired the Swedish outdoor clothing brands, they have purchased already capital tie-ups with Mitsubishi and and equipment manufacturer Haglofs proven brands and helped them grow. Sharp and now concentrates on audio Holding AB for US$133m in 2010. Asics and car navigation systems. JVC and plans to expand the Haglofs brand in Kenwood combined in 2008 to form Japan and Asia. Recent reports indicate Electronics majors merge JVC Kenwood Holdings. The three that Goldwin, another sports clothing to ward off competition television majors will need to raise their manufacturer, is also looking to acquire presence in growing overseas markets in an attempt to balance their winter from South Korea in Asia, South America and Africa in sporting goods product sales with a order to maintain share and we do not Although, as mentioned, Japanese spring/summer sports portfolio. rule out some major acquisitions by consumer electronics companies still them going forward. In cosmetics, Shiseido Co acquired the have a dominating presence in Japan, San Francisco based mineral makeup they have retreated somewhat in company Bare Escentuals Inc. for overseas markets. Sony, Panasonic US$1.5bn. The deal solidified Shiseido’s and Sharp; the major Japanese brands, Predictions have fallen behind Korean giants entry into the global natural cosmetics For consumer goods companies Samsung and LG in global market segment and also follows the pattern in Japan, the strong yen, waning share, particularly in flat panel television created by other dominant global demographic trends and a deflationary displays. In an effort to maintain market players such as Estee Lauder who environment in the domestic market competiveness the smaller firms have acquired natural brand Aveda. Rather will continue to encourage the major brand companies to seek new opportunities abroad for at least the next three to five years. Luxury and premium products will be in a steady state of decline, as maturing Japanese consumers seek value. Marginal players in each segment will likely become opportunities for MBOs, private equity, and foreign-capital multinationals.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 50 600 (US$m) 45 500 m
Dec 11 Asty, Inc. Cosmetics Kenkou Corporation n/d e
40 $ m e u
35 u l 400 l o Dec 11 Wave International Apparel brand Tokyo Style 13 a v 30 v
Co. Ltd. l n a
o 300 i 25 e
July 11 SANYO Electric Kitchen goods Haier Group n/d t d c
Co, 9 Subsidiaries e a 20 s 200 g n July 11 Pentax Ricoh Digital cameras Ricoh n/d a
15 r a r Imaging e T 10 v May 11 Kawashima Curtains, JS Group 180 100 A Selkon Textile home interior 5 Jan 11 Prime Japan Inc. Wedding jewellery Baring P.E. Asia n/d 0 0 (Hong Kong) 2008 2009 2010 2011 Oct 10 Kasco Corp. Golf products Mamiya-OP Co. Ltd. 26 Total deal volume Oct 10 Sanei International Apparel TSI Holdings 315 Source: Capital IQ and Mergers Alliance Analysis Average deal value $m Jun 09 Kracie Holdings Toiletries & Hoyu Co. Ltd. 261 cosmetics Dec 08 SANYO Electric Electronics Panasonic Corp. 1,230
Deal Focus - Japan 19 Turkey Turkish consumer market in Investors look to lively an advantageous position apparel market Eurozone uncertainty and trouble in The rise in the appetite for clothing the Middle East have not prevented brands has been significant, however, the rapid growth of the Turkish it is only recently that investors have consumer market. looked to M&A as a means of capitalising on this demand. In Factors such as rapid urbanisation; an December 2010 the owner of Turkish “The Turkish increasingly organised retail segment footwear company Yesil Kundura, (318 shopping malls by the end of purchased a majority share in Ceylan consumer 2012); an influx of foreign brands Giyim in a deal worth US$101m. Ceylan creating conducive competitive Giyim’s primary activities are the goods sector conditions; and highly favourable production and marketing of adult is quickly demographics, that are increasingly sportswear and fashion wears. trending towards more western It operates 54 retail stores and becoming highly lifestyles, are all benefiting two online stores. the consumer sector. attractive to investors. Private equity activity in this space has This has been also been apparent: In October 2010 European multinationals newly-formed private equity fund especially evident in target personal care market Eurasia Capital Partner (a fund focused on equity and equity-related the ready wear/apparel French CF&T giant L’Oréal expanded investments in Turkish companies) sector. Although deal its presence in the fast growing Turkish along with the Balkan Accession Fund, personal care market with the purchase acquired a 50% share in Wenice Kids, volume has been low of Canan, one of Turkey’s leading hair a children’s clothing brand that sells in in the past, there are care companies. Most of Canan’s more than 300 shops in 46 countries. US$26m turnover comes from its Ipek The investors hope to help realise numerous active deals brand. Closing the deal the consumer Wenice’s ambitious intention of entering products president for L’Oréal noted: another 40 markets by the end of 2012 in the market and in and establishing itself as one of the “The Turkish cosmetics market is world’s top ten children’s clothing the pipeline.” expanding strongly and has a very large brands. growth potential. The acquisition of Ozkan Yavasal, Canan will bolster our positions in Daruma Corporate Finance hair-care products, the largest Consumer spending segment in the market.” reaching new heights It is reported that L’Oréal is looking to pursue further M&A in high growth Turkey has quickly become one of the emerging markets with Turkey still most dynamic and fastest growing high on its radar. consumer markets. It should be noted that such rapid growth may slow next Elsewhere, Svenska Cellulosa year if the macro conditions in Europe Aktiebolaget continued its trend of worsen (Turkeys biggest export market targeting personal care companies in is the EU, and by some margin). emerging markets with its acquisitions of San Saglik Urunleri SanTic and Nonetheless, Turkey’s estimated Komili Kagit ve Kisisel Bakim Uretim. consumer spending level of US$6.9bn The former is an adult diaper and under in 2010 is expected to almost double pads company whilst the latter to US$13bn by 2014. These growth specialises in baby diaper and expectations have stemmed from the feminine care products. growth of the retail sector, increasing affluence and the emergence of The acquisitions are in line with SCA’s domestic brands to compliment strategy of pursuing inorganic growth in the influx of foreign players. Europe and in other parts of the world.
Deal Focus - Turkey 20 In parallel with this rise in consumer spending (which has already surpassed pre-crisis levels) we expect to see an increase in M&A movements.
Although the majority of investments have “been channelled into durables, Dabur’s US$68m acquisition of Hobi Cosmetics illustrates that the Turkish consumer brands market is not limited to sub-sectors such as apparel.”
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 8 60 (US$m) 7
50 m
Dec 11 Sanpan Isitma Decorative Zehnder Group n/d e 6 $ m Sistemleri San products AG (Swi) e u u l 40 l o Aug 11 San Saglik Personal products Svenska Cellulosa 15 5 a v v
Urunleri San.Tic. Aktiebolaget (Swe) l n a
o 30 i 4 e
Jun 11 Komili Kagit ve Baby diapers, Svenska Cellulosa 49 t d c
Kisisel Bakim feminine care Aktiebolaget (Swe) e a 3 s 20 g n Dec 10 Ceylan Giyim Ready-wear Kamil Engin Ye il 101 a r a r apparel (Private individuşal) 2 e T v
10 A Nov 10 pek Giyim Apparel CarrefourSA 30 1 Ma azaları Oct 10 Wenğice Kids Childrens apparel Eurasia Capital n/d 0 0 Partners 2008 2009 2010 2011 Jul 10 Hobi Cosmetics Cosmetics Dabur Group 68 (India ) Total deal volume Source: Capital IQ and Mergers Alliance Analysis Average deal value $m
Deal Focus - Turkey 21 France Luxury goods leading the emerging middle classes and the the M&A market increasing number of high wealth individuals. France is well known for its luxury Luxury brands are also adjusting to brands with global leaders such as an environment where buying power LVMH, PPR, Hermès, Chanel and is shifting to emerging markets. L’Oréal (but also numerous small and Furthermore, consumers in developed mid-sized independent companies) regions are making luxury purchases prospering. As such, transactions across a widening range of distribution featuring luxury brand companies are “The French formats, including outlet stores and over-represented, and strongly fuel the online. consumer M&A market. brand M&A The market is considered very attractive market will be due to its profitable, fast growing and Private equity buyers noncyclical characteristics. Moreover, very active driven by the luxury French global market leaders are now competing with new strategic buyers M&A in the consumer goods sector where multiples from emerging countries like China. As sector has been very active over the are ever-increasing as a consequence, premium assets are in past two years, fuelled by the cash high demand and transaction multiples stockpiles held by the global leading a consequence of are surging. players and private equity firms that have sought to make deals and Recent activity included the acquisition sector characteristics spend their cash after two years of of Bulgari by LVMH, the IPO of macroeconomic uncertainty and limited (high growth, profitable L’Occitane on the Chinese Stock access to financial leverage. and non cyclical) and Exchange and the battle between LVMH and the Hermès Family for Recent deals of particular interest the increasing appetite the control of Hermès. LVMH, the included the sale of Spotless, the world's largest luxury goods company, French maker of laundry and cleaning of Asian strategic unveiled a US$5.2bn all-share deal to products, to BC Partners, a UK-based buyers generating take over Italian jeweller Bulgari. The private equity group, in a deal valuing company acquired 50.4% of Bulgari, the company at about US$826m. Axa higher competition issuing 16.5 million shares in exchange private equity, which built Spotless up for 152.5 million shares held by the through six bolt-on acquisitions over with established Bulgari family. five years, has more than doubled its initial equity investment in the company. world leaders.” The French firm also bought the rest of BC Partners saw off competition for Bulgari’s shares at 12.25 Euros a share Michel Degryck, Spotless from rival buy-out groups - a premium of about 60%. As part of Bridgepoint and Lion Capital. Capital Partner the deal, the Bulgari family became the second-biggest family shareholder The Spotless transaction illustrates the of LVMH. appetite for French brands and the high proportion of deals completed by private equity houses offering Luxury giants seeking new valuations comparable to strategic brands and routes to clients industrial players. 2011 was especially productive for private equity due LVMH, PPR and L’Oréal are looking to the banking leverage that was towards consolidation on a global scale available until August of that year, and are actively surveying mid-market which enabled LBO France and LFPI opportunities to strengthen their brand Gestion to acquire men's underwear portfolio. maker Eminence, L Capital to acquire Captain Tortue and EDRIP to finalise They are also looking to reinforce an MBO for children’s apparel their distribution networks in the BRIC brand Sun City. economies, where they hope to grow at a multiple to local GDP thanks to
Deal Focus - France 22 Corporates likely to spur M&A activity in 2012 The consumer branded goods market will be affected in the coming months by the downgraded growth forecasts and a tough debt market. We therefore expect private equity activity to be limited and the market to be supported by industrial players which have sound balance sheets and a strong inclination to further expand into emerging markets. The sector attractiveness, combined with the increasing appetite of Asian strategic acquirers, is generating higher competition for M&A transactions and pressure for higher multiples.
Development of own-brand ranges by mass-retail Many of the mass market brands are now competing against their distribution networks, which are increasing their margins through developing their own product ranges and private labels. Decathlon (40% market share of the French sporting goods retail market) epitomises this new trend. It is increasingly selling its own-branded products and carrying out self-innovation rather than simply retailing third-party branded products.
Recent PE transactions M&A activity
Date Target Description Acquirer Deal Value 100 (US$m) 90 Jan 12 Briconord Sarl Home improvement Evolem n/d
e 80 products m
u 70
Aug 11 Captain Tortue Door to door L Capital 83 l sales apparel o v 60
Jul 11 Paul ka High end apparel Change Capital 69 n o
i 50
(UK) t c
Jul 11 Sun City Childrens apparel Edrip + Management 69 a 40 s
n 30 a
Jun 11 Le Tanneur Leather goods Qatar Luxury Group 40 r et Cie (Qatar ) T 20 Jun 11 Eminence Underwear brand LBO France 206 10 0 Jun 11 The Kooples Fashion apparel LBO France n/d 2008 2009 2010 2011 Feb 11 Sergent Major Childrens apparel Edrip + Siparex n/d Source: Capital IQ and Mergers Alliance Analysis Total deal volume Sep 10 Sandro Maje Fashion apparel L Capital and Florac n/d Claudie Pierlot Feb 09 Spotless Laundry/ cleaning BC Partners 826 branded products (UK)
Deal Focus - France 23 Germany A balanced and stable consumer market Following the stuttering global economic recovery in 2010 and first half of 2011, macroeconomic risks rose again in Q3 2011. With sovereign balance sheets saddled by debt burdens, financial market “We expect instability and deteriorating market many family confidence (amplified by “high-spread” countries) the growth prospects in owned advanced European economies remain mid-size uncertain. Germany’s performance in In the mid-market, UK based 3i Group this context has been above-average: recently acquired Amor GmbH in a companies to trigger Price adjusted GDP growth for 2011 secondary buyout. The supplier of was 2.7% with real wages growing by jewellery, marketed internationally under further consolidation 1.9%. Consumer spending increased the Amor brand, was acquired from and be the main by 1.6% while inflation remains Pamplona Capital for an estimated relatively low at 2.3%. Moreover, the US$140m. This implied a multiple of participant in consumer unemployment rate experienced a slight approximately 6.3 x EBITDA 2010. goods M&A. Despite decrease of 0.6% to level at 6.6%. 3i Group intends to extend Amor’s Generally, rather robust consumer distribution channels internationally the challenging current spending throughout 2008-2011 and strengthen its brand position. economic climate, M&A ensured relative stability in consumer Also in the mid-market, ACapital goods M&A. recently acquired the family owned activity in the sector Mustang, the fashion brand for an undisclosed amount. should remain stable.” Private equity investors Stefan Constantin, active C.H. Reynolds Corporate Made in Germany As mentioned, through 2008 to 2011 Finance the number of transactions in the Germany is home to a number of global consumer goods industry in Germany power brands, included among them remained generally stable, averaging are: Adidas AG, Bosch & Siemens, 50 deals per year. Beiersdorf AG (Nivea), Puma SE and Hugo Boss. Their products range from During 2011 there were a notable sportswear to home appliances, from number of large-scale cross-border skin care to high-end clothing. All these deals that were supported by firms are pursuing targeted M&A favourable financing conditions for strategies to support their ambitious financial investors at the time. growth plans. In July 2011, Blackstone Group agreed From 2008 to 2011 sports and lifestyle to acquire Jack Wolfskin, the functional apparel companies Adidas and Puma apparel and equipment brand, from completed several cross-border deals Barclays Private Equity (UK) and focused on both the extension of their Quadriga Capital Services (Germany) existing brand portfolio and the for US$982m - equivalent to a multiple consolidation of the companies of 2 x 2011 sales and 8 x the position in foreign markets. acquisition price paid in 2005 by Barclays. The transaction underpins the Both companies have been targeting continuing high growth expectations of sales growth of up to 50% by 2015, the outdoor sector driven by changing partially supported by inorganic lifestyle trends in developed countries expansion. This was exemplified by and the ongoing internationalisation of Adidas’ acquisition of Ashworth Inc, the industry. the listed US based retailer of golf apparel. They also recently acquired US
Deal Focus - Germany 24 performance sports brand Five Ten. This was illustrated in 2009 when Puma SE meanwhile acquired the strategic investors acquired assets of Cobra Golf brand from Acushnet insolvent consumer companies as well Company; in addition they purchased as underperforming assets at Dobotex International, the Dutch favourable valuations (this was exclusive licensing partner of a variety particularly evident in the apparel of fashion, sports and sports-lifestyle industry e.g. Baeumler AG and brands. Rosner GmbH & Co). During the same period, Beiersdorf AG laid out its strategic intention to focus on its core brands – primarily Nivea, Factors determining Eucerin and La Prairie – while future M&A streamlining and partially divesting Cross-border M&A activity involving its non-core brands. German consumer goods companies In the textile segment HUGO Boss buying foreign targets has been largely acquired 15 mono-brand stores and triggered by companies striving to related assets of the Moss Bros Group internationalise their distribution (the listed UK fashion retailer) in Q1 networks but also by their need to 2011 to further expand their store upscale and to secure additional network. growth platforms (e.g. premium brands targeting emerging markets). Domestic growth opportunities in the Opportunities abound German consumer goods market stem despite power brands primarily from the ongoing life-style dominance changes and rising environmental consciousness of the consumer. To The total sales volume of German capitalise on these trends, companies consumer goods is estimated at need stringent brand positioning and US$50bn, with the top five brands distinctive brand value propositions, accounting for US$27.7bn. as well as efficient distribution and communication channels - often a The industry’s sub-sectors generally prerogative of the larger market players. have their distinctive market leaders We expect these factors to support (the aforementioned power brands), consolidation trends going forward. while the rest of the market is populated by a broad array of mid to small-cap players (many family-owned) leaving room for consolidation opportunities.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 80 140 (US$m) 70 120 m
Dec 11 Run & Style GmbH Sports apparel Maier Sports GmbH n/d e 60 $ m & Co. KG & Co. KG 100 e u u l l o Oct 11 Mustang - Fashion apparel ACapital n/d 50 a v 80 v Bekleidungswerke l n a o
i 40 e
Jul 11 Jack Wolfskin Outdoor apparel Blackstone 982 t d
c 60
Ausruestung fuer and footwear Group L.P. (UK) e a 30 s g n Jun 11 Medion AG Electronics Lenovo Group 261 a
40 r a r and IT Limited (HGK) 20 e T v Apr 11 SLV Elektronik Lighting systems Cinven Ltd. 772 10 20 A GmbH (UK) Apr 11 d&b Electronics Odewald & n/d 0 0 audiotechnik GmbH Compagnie 2008 2009 2010 2011 Feb 11 Siteco Lighting solutions Osram GmbH n/d Total deal volume Feb 11 Weco Furniture under Mebelplast S.A. n/d Source: Capital IQ and Polstermoebel WECO brand (Poland) Mergers Alliance Analysis Average deal value $m Jan 11 PAIDI Moebel Furniture for DZ Equity n/d GmbH children Partner GmbH Dec 10 Amor GmbH Jewellery 3i Group PLC (UK) 140 manufacturing/ retail
Deal Focus - Germany 25 Italy Consumer confidence Luxury reigns supreme as nosedives international markets up A European debt crisis and contagion the stakes concerns have put a damper on Similar to France, international economic growth in Italy and has awareness for premium local brands forced the government’s hand to is as high as ever thanks to an ever initiate broad austerity measures. growing affluent class in the developing world. “Household There are now real fears that another recession is imminent as One of the most high profile global spending Italian firms struggle to regain deals over the past 18 months was the competitiveness. capability, acquisition of Italian luxury consumer To compound these sentiments the group Bulgari by its French counterpart already most recent local statistics show Italian Louis Vuitton Moët Hennessy (LVMH) in consumer confidence fell to its lowest an all-share transaction for US$5.2bn. undermined by the level in over three years. Spending will The mega deal will reinforce LVMH’s global recession, has likely remain static over the next six worldwide growth aspirations and allow months with growth (if any) being it to double its jewellery and watches been further hit by the achieved on the back of industrial businesses while improving its expansion. purchasing and distribution operations. increase in VAT on The high purchase price, which was at consumer goods, a 60% premium to Bulgari's average Firesale prices for brands share price, was partly due to multiple drawing consumers bidders and partly due to the current towards low cost Although there has been a y-o-y dip in favourable conditions of the luxury deal volume due to deteriorating macro market. products. Mid-range conditions (although 2011 saw a slight Another recent premium transaction brands are suffering recovery), consumer goods led M&A was the acquisition of the Mogliano has remained relatively active owing to Veneto based apparel firm Belstaff and are being targeted a plethora of esteemed local brands by the Swiss luxury holding company (actively involved in the market) and Labelux for US$161m in June 2011. by stronger competitors enthusiastic international participation. The rationale behind the purchase of looking for acquisitions There has also been substantial private the predominantly menswear firm was equity involvement in Italian brands as to extend Labelux’s coverage in Asia, at convenient multiples.” well as a number of important IPOs - particularly China where menswear is Prada, Ferragamo. Conspicuous by one of the country’s fastest growing Nuccia Cavalieri, their absence however are local trade luxury sectors. Ethica Corporate Finance buyers, which can be attributed to the small to mid-sized Italian companies lacking the required financial strength Private equity eager to to support M&A. acquire luxury Another characteristic has been the Interestingly, private equity high valuations; Moncler, Moleskine, involvement has been focused in the Coin and Braccialini all had at least luxury/premium segments due to the nine times EBITDA valuation multiples. mass segments heavy working capital, It should be noted, disrupted high debts and low barriers to entry. economic conditions have also One of the most high profile deals was led to opportunities involving buying the minority stake sale of the high-end underperforming marquee brands at brands holding group Moncler SpA to discounted prices - the bankruptcy of Eurazeo private equity fund for Mariella Burani and Ittierre groups led US$572m. The 45% equity acquisition to the firesale of the Gianfranco will support Moncler’s entry into Ferrè, Mandarina Duck, Malo markets such as China and the US. and Arcte brands. Its brands include Moncler, Marina Yachting and Henry Cotton.
Deal Focus - Italy 26 Outbound deals prevail Underlying currents of the Cross-border will Outbound deals have been more consumer brand market remain king prevalent compared to domestic The Italian consumer products industry Given the propensity for large Italian consolidation over the past three is relatively fragmented with thousands companies to look for growth years with heavy involvement by of companies with turnovers ranging opportunities abroad (rather than some of the world’s most important from US$1-100m. The industry as a acting as consolidators domestically), consumer companies. whole still has a family owned flavour we expect the current trend of foreign Luxottica, the world’s largest eyewear to it. Curiously, there are a distinct lack big cap companies raiding the country company (Ray-Ban, Oakley) was busy of domestically based mass market for strong historical premium brands to finalising acquisitions in Mexico, New brands as most have been bought out continue. The acquisition mood will be Zealand, Israel and Turkey; while Giochi by foreign players. driven by undisputed brand equity Preziosi, the world’s fifth largest on one side and by opportunism Moving to mass-premium, most small on the other. toymaker, acquired a 25% stake in to mid-sized Italian companies are France based toy distributor King struggling to position themselves in an In terms of valuations, we expect Jouet. Elsewhere, furniture firm increasingly value conscious consumer multiples to remain in the high range Elica SpA acquired three companies market. There has been an ongoing and for bargains to be few and far in China and India. disconnect between what a company between. sells a product for and its actual market value. Price points have both been lower to increase volume or higher to make up for lost volume. Even with these adjustments, margins have remained low.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 90 350 (US$m) 80 300 m
Dec 11 Coccinelle S.p.A. Fashion E.Land World 20 e 70 $ m accessories Company Ltd. (Kor) 250 e u u l 60 l o Sep 11 Omas Srl Writing instruments Ming Fung Jewelry 51 a v 200 v (HK) l
n 50 a o i e
Aug 11 DIT Group Jewellery Gitanjali Gems 11 t 40 d c 150
(India/ Corporate) e a s 30 g n Aug 11 Bulgari Jewellery LVMH 2,470 a r
a 100 r (France) e T 20 v Aug 11 Moncler Sportswear Eurazeo 572 A 10 50 (France) Jul 11 Braccialini Leather NEM 36 0 0 accessories 2008 2009 2010 2011 Jul 11 Toy Watch Jewellery J.Hirsch & Co n/d Total deal volume Jul 11 Mandarina Duck Leather E-Land Co 66 Source: Capital IQ and accessories (S. Korea) Mergers Alliance Analysis Average deal value $m Feb 11 Gianfranco Fashion Paris Group (UAE) n/d Ferrè Dec 10 Cantieri Navali Luxury yachts Nauticstar Marine 18 Lavagna (China) Jul 10 Barovier & Toso Glass accessories AVM Private Equity 17
Deal Focus - Italy 27 The Netherlands Slump in confidence Consumer giants pursuing Declining GDP growth and rising international acquisitions inflation have led to a decrease in the Dutch-British multinational consumer purchasing power of the consumer. powerhouse Unilever (turnover Although a recovery is on its way, US$63.1bn) has been highly consumer confidence has been hit acquisitive in recent times after years which has negatively impacted the of reorganisations and disposals as sales of consumer goods. they look to step up growth. “The 2010 consumer goods M&A volume Recent developments within the consumer sunk compared to previous years, company have shown increased however, 2011 was much healthier investments in the fast growing home sector remains with more deals closed in the first and personal care divisions. The recent three quarters than the whole of 2010. US$3.7bn acquisition of US based an interesting Alberto Culver; a company active in M&A proposition with beauty and personal care, highlights Strong private equity this new strategy. Another large-scale lots of consolidation interest deal took place in 2010 when Unilever acquired the home and personal care and economies of scale Interestingly, more than one third activities of the US based Sara Lee for activity taking place. of all deals were cross-border, which US$1.85bn. These acquisitions enforce underlines the international orientation Unilever’s market position and brand Multi-channel sales of Dutch businesses. portfolio of diversified products across a range of price segments. will increasingly gain In apparel a quarter of deals had importance as private equity investment. Several well If past activity is any indication, known private equity firms including expect electronics multinational Philips producers reach their GIMV and NIBC invested in this (turnover US$36bn) to continue its sub-sector. acquisitive tendencies. Recent buys customers more and include the purchase of Saeco, an In 2011 clothing conglomerate Liz Italian producer of high quality coffee more via e-commerce Claiborne sold its loss making Mexx machines, and the purchase of China in an attempt to brand to a joint venture that included based kitchen appliances firm Povos. US headquartered private equity firm In addition, Philips recently acquired increase margins. the Gores Group in exchange for a the Spanish luminaires company minority of the equity. According to Liz Indal to boost Philips’ European Watch for strategic Claiborne's CEO, the reasons for the market position. activity in this space.” sale of the troubled brand were risk mitigation and debt reduction and to The electronics giant recently laid out focus the company’s attention on its intention to increase its M&A activity Bart Jonkman, in the coming years to support its BlueMind Corporate Finance growing its core brands. Liz Claiborne acquired Mexx in 2001 for US$264m. projected growth of 4-6% per annum In September 2011 Gores Group until 2013. paid just US$85m. Also in 2011 US private equity firm Sun Consolidation in games Capital acquired Amsterdam based fashion brand Scotch & Soda for an segment undisclosed sum. Scotch & Soda sells In 2010 M&R de Monchy, a company its designer apparel through 5,000 active in games, puzzles and toys, department and third party retail stores acquired Jumbo Spellen, a Dutch in over 30 countries. Kellwood, a company active in party games. holding company backed by Sun Capital, aims to grow Scotch & The company has invested large Soda’s US market share. amounts in marketing and sales in key markets such as the Netherlands, Belgium and Germany. Most recently it acquired the remaining 55% shares of King International further consolidating its share of the traditional games market.
Deal Focus - The Netherlands 28 Multi-channel gaining Germany; with France, Austria and significance Poland all set to follow. It is expected that online sales will account for 25% With high street sales suffering, an of its total sales in the medium term. increasingly important trend has been Next to electronics, clothing and shoes multi-channel sales. Indeed, reports are the largest non-food product have shown that 69% of Dutch segments online. Online sales now consumers buy products via two represent 6% of total sales across or more channels. these sub-sectors. We expect the Online sales in particular have risen trends in multi-channel sales, in significantly in recent years and are combination with the attractiveness of expected to keep growing as large branded goods, to create interesting retailers and brand stores aim to opportunities for financial and trade intensify growth via a multi-channel buyers alike. approach. Private label retailer C&A recently announced the launch of its online store in the Netherlands and
Industry insight in general will to a large extent What do you expect to be the depend on the ability of European principal internal drivers of M&A Name: Arjo Stammes, politicians to mitigate the challenges activity in the consumer goods Company: Avedon Capital Partners facing the EU. At best we feel neutral industry over the next 18 months? (formerly NIBC) about expected M&A activity in this Position: Partner/Investment Director sector for the coming 18 months. In these economic circumstances we expect that strong companies will improve their market position at the Which regions do you expect to expense of weaker competitors. witness significant M&A activity in Consequently, we expect that most the consumer goods industry over M&A activity will come from the the next 18 months? market leaders in their respective We expect that the regions with the niche segments of the market. most favourable economic growth and consumer confidence will be How do you feel about M&A in this South America and Asia. Although, sector over the next 18 months? we expect that there will be M&A activity for strong companies in this For the Benelux and German region sector in North-West Europe as well. we believe that the consumer M&A
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 25 500 (US$m) 450 m
Dec 11 Van Nicholas B.V. Titanium bicycles KOGA B.V. n/d e 20 400 $ m e
u 350 u l l o Sep 11 Mexx Clothing designer, Gores Group LLC, 85 a v 15 300 v
clothing retailer (USA) l n a
o 250 i e
Aug 11 Sapph Underwear Mr Roland Kahn n/d t d c 10 200 e a s g n Jul 11 Delvaux Leather handbag Fung Brands Ltd n/d 150 a r a r Createur and accessories (HK) e T 5 100 v Jul 11 Scotch & Soda Apparel Kellwood Company n/d A (Sun Capital) (USA) 50 Jun 11 Koninklijke Bicycle Pon Holdings BV n/d 0 0 Gazelle manufacturer 2008 2009 2010 2011 May 11 Ego-Lifestyle Computer Value8 NV n/d accessories Total deal volume May 11 Hedgren Travelbags Unnamed Bidder n/d Source: Capital IQ and Creations Mergers Alliance Analysis Average deal value $m May 11 Dirk Apparel Zeis Excelsa SpA n/d Bikkembergs (Ita) *Note , the majority of closed deals over the past two years had undisclosed deal value. Apr 11 Philips Television set TPV Technology Ltd n/d (TV Division) manufacturer (BM)
Deal Focus - The Netherlands 29 Poland A growth economy in an The most noticeable trend has been unsettled continent the consolidation process in the fragmented cosmetics sector which The Polish economy continues to continues to gather pace, with Dermika realise solid growth, and despite acquired by Swedish personal care firm somewhat of a slowdown of late, Cederroth, and Sarantis acquiring the the growth forecast for 2012 remains Kolastyna brand. healthy at 3.2%.
The Polish consumer sector has been Foreign brands dominate “Growth in progressing by leaps and bounds, with Polish retail spending increasing over 40% but local leaders evident between 2005 and 2010, from Over the past decade, starting from US$100bn to US$142bn, and an consumer a very low benchmark, branding has estimated volume terms increase of become increasingly implanted in goods is 28% from 2005 to 2009. The spending consumer behaviour. Foreign owned increase has been underpinned by dynamic, and while companies have built up a strong Poland’s strong economic performance position in recent times, attracted M&A activity here over the period, and its healthy by the size of the local market; either resilience during periods of global outside retail has been growing their global brands from economic slowdown. low key, opportunities scratch since the 1990’s or, more Consumer spending has been recently, from strengthening locally are likely to become reinforced by a long-term base effect acquired names, or indeed developing from spending rising from a lowly new names built on local acquisitions. more frequent.” starting point and the rapid Although foreign brands dominate the development of a vibrant middle-class, high street, there are a number of highly Michael Harvey, falling unemployment, rising disposable successful ‘national champions’ that IPOPEMA Securities incomes and increased product have grown to become leaders in their availability. sector and in several cases across the The emergence of new modern region. One of the most dynamic of shopping mall formats has changed the these firms is LPP, a designer and retail landscape dramatically in recent distributor of clothes that owns a brand times and are now ubiquitous in most portfolio that includes Cropp and urban areas. Consumers meanwhile Promo Stars. Increasingly, these have had growing access to a range of national champions are tapping the consumer finance options, particularly local stock market to fund growth. credit cards and bank loans. However, While the major growth trends create a consumer debt levels remain relatively positive long-term backdrop, they also low as mortgage lending has not yet operate with a consumer base which is come close to reaching Western extremely cost conscious relative to European levels. Western European consumers and one that usually exhibits limited product loyalty and that generally favours M&A activity remains low local products. Transaction activity in Polish M&A in the broadly defined consumer goods category has been relatively sparse with transactions peaking in 2010. In 2011 there were seven transactions. This limited number largely reflects the scarcity of locally owned brands, and the common desire by the industry leaders in fragmented sectors to be the catalyst for consolidation.
Deal Focus - Poland 30 Online shopping picks Decelerating economy up but still immature should spur M&A Consumer spending remains Slightly slower growth in Poland, a predominantly a bricks and mortar weakening zloty and stagnant growth affair, even so, companies like Empik across the EU will make the business have been looking to acquire leading environment somewhat difficult over the players in the online space (although its next 18 months. Growth will be further attempt to acquire control of leading constrained from rising rents, slowing online bookstore Merlin was recently new space availability, and an blocked by the Competition Authority) increasingly cautious consumer. to secure and defend their position. While online spending is growing Private equity interest in consumer exponentially from a low base, it still firms has always been strong, but remains a niche activity, constrained broadly constrained by limited deal by internet access, the relatively low opportunities and aggressive income levels of the computer savvy, pricing. We expect this tightening payment and security constraints and environment to accelerate the poor logistics. process of consolidation.
Recent transactions M&A activity
14 25 Date Target Description Acquirer Deal Value (US$m) 12 m
e 20
Jun 11 LPP S.A. Fashion apparel Grangeford n/d $ m Limited (UK) 10 e u u l l o Jun 11 DURLIN East Household and Durlin France S.A. n/d a v 15 v
8 l
Europe Sp. z.o.o. personal products (France) n a o i e
Mar 11 Kazar Footwear Footwear Gino Rossi S.A. n/d t d
c 6 e Sp z.o.o. a 10 s g n Nov 10 Rosetex Personal products SSL International 5 a r a 4 r plc (UK) e T 5 v Oct 10 Dermika Sp. z.o.o. Cosmetics Cederroth 15 2 A Industry Oct 10 ROY S.A. Mens apparel Skyline Interim n/d 0 0 Management Sp. 2008 2009 2010 2011 Jun 10 Grupa Kolastyna Household & Sarantis Polska S.A. 3 S.A. personal products Total deal volume May 10 Effect Leisure equipment Lubawa S.A. n/d Source: Capital IQ and System S.A. Mergers Alliance Analysis Average deal value $m Sep 08 Artman S.A. Apparel LPP S.A. 184
Mar 08 Cederroth House-ware INVESTcon 27 Ozdobnego GROUP S.A.
Deal Focus - Poland 31 Russia Economy well placed establishing a foothold in the oral care segment. It is generally the case that Post 2008 crisis, the Russian economy when FTSE 100 companies have has demonstrated a trend towards a acquired in emerging economies FTSE general recovery along with solid 350 and private companies start to growth in private consumption buoyed follow. We expect more FDI into by a recovery in demand and increases Russian consumer goods. in consumer lending. Consumer companies are by and large “We expect in good health with many securing working capital, deleveraging their Russia’s operations, and training their focus imminent WTO on enhancing operating profitability. By the end of 2011 the inflation rate membership dropped to 4.2% with growth expected to have the same great to remain steady for 2012 at around 4%, driven by domestic demand. impact it had on Progressively rising oil prices may China’s economy since push this figure higher. 2001. It will help open Unilever takes over Russian up more trade and cosmetics market access to the Russian Deal activity over the past 18 months Private equity likes shoes consumer market and in terms of volume and value has remained lively thanks to some notable Another significant recent transaction ultimately more deals in the CF&T space. Most of the was the acquisition of a 36% stake in investment corporate activity in consumer goods the Monarch Group, a leading footwear has been focused on consolidating producer and retailer in Russia and opportunities in particular sub-sectors such as the Ukraine, by United Capital Partners apparel and household products Group (UCP) for US$30m. consumer goods segments, although there has been including in M&A.” some notable foreign interest, Since 2001, Monarch has been the particularly from financial buyers leading footwear retailer in the middle David Wolfe, in Western and Northern Europe. and lower-middle price segments. This area of the footwear market has proven Northstar Corporate Finance Consumer goods in 2011 was marked to be the most resistant to the crisis- by a deal that is likely to change the driven volatility of consumer demand, competitive landscape of the entire and in the post-crisis environment is cosmetics sub-sector. In December demonstrating steady growth. The 2011 Unilever acquired 82% of Russian group operates a portfolio of private beauty cosmetics company Concern labels consisting of Monarch, Elite by Kalina for US$682m. Concern Kalina is Monarch, Kaiser, Good Shoes and Russia's largest local personal care WildCat. company with leading positions in skin and hair care, and sells its products Financing, provided by investment firm primarily in Russia, Ukraine and UCP as a result of the additional share Kazakhstan. capital, will be used to support the group’s business expansion in Russia, The deal will go some way in strengthen its leading position in the strengthening Unilever's Ukrainian market, and promote its competitiveness and brand portfolio private label brands. in Russia. Crucially for the Anglo-Dutch multinational, the purchase of Concern Kalina will give it a leading position in CF&T and hair care, as well as
Deal Focus - Russia 32 Balance account surplus Largest European boosts consumerism consumer market in One of our Japanese clients, 10 years? when touring Russian acquisition We expect there will be some opportunities in the consumer goods opportunities in the consumer goods sector commented that ‘Russia is not a sector in the near future, especially developing economy, it is a re-emerging since the Russian economy continues economy’. However, its re-emergence to grow faster than that of the into the global economy has taken developed world. Russia’s membership some short cuts. First, Russia has into the WTO, which will be ratified taken advantage of its enormous wealth sometime in 2012, will also spur growth of natural resources to quickly get hard in the consumer goods sector as well currency via exports, especially oil and as present a number of M&A gas. Consequently, its current account opportunities. balance was US$86bn in 2011, the fifth largest in the world. It has used the According to Goldman Sachs, Russia’s proceeds from its trade surplus to GDP could overtake that of Italy’s as support the import of consumer goods soon as 2017, and in the decade 2020 rather than manufacture them. to 2030, overtake France, the UK and ultimately Germany. The result would Global companies have generally be that within 10 years Russia could exported their consumer goods to become the largest consumer market Russia and retail of imported goods in Europe. has grown rapidly. For example, L’Oréal has been importing its goods into Russia via a joint venture structure with a local distributor. In 2011, however, it opened up its first manufacturing facility to produce its brands locally. Nevertheless in terms of brands in general, Russia has had success maintaining some local brands which have attracted foreign investors such as Proctor & Gamble in the past.
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 18 50 (US$m) 16 45 m
Nov 11 Concern Kalina Cosmetics Unilever Plc 682 e 40 14 $ m (UK-Netherlands) e
u 35 u l 12 l o July 11 OAO Melon Apparel East Capital 20 a v 30 v
Fashion Group Explorer AB (Sweden) l
n 10 a
o 25 i e
Apr 11 Akvaton Bath furniture Roca Corporacion n/d t
8 d c
Empresarial, S.A. (Spain) e a 20 s 6 g n Mar 11 Atalant Factory Hosiery products Totall n/d 15 a r a r e T 4 10 v Jan 11 Monarch Group Footwear United Capital 30 2 A Partners Group 5 Jul 10 Askona Holding Furniture Hilding Anders 67 0 0 International AB (Sweden) 2008 2009 2010 2011 Jun 10 Moskvichka OAO Apparel and ZAO MDM Aktiv n/d accessories Total deal volume Feb 10 Imperial Porcelain Porcelain products Evolutsia Porcelain n/d Source: Capital IQ and Manufactory JSC Limited Mergers Alliance Analysis Average deal value $m Jun 09 Swedwood Furniture IKEA Torg LLC n/d Esipovo LLC Jan 09 Harmony Plus Personal products JSC ARNEST n/d
Deal Focus - Russia 33 Spain Suffering consumer Capital acquiring a 40% stake in goods sector footwear retailer Tino Gonzalez. With regards to branded apparel noteworthy After a period of sustained growth was the acquisition of a minority stake supported by a loose monetary policy, in Pepe Jeans in a cross-border deal the credit bubble finally burst in 2008 involving the Spanish private equity firm and financing for households and Artá Capital and the French private companies has been significantly equity firm L Capital Management. restricted since. As a result the “The unemployment rate has remained high and consumer confidence has been hit. Austerity may bolster uncertainty Recent studies show that the average M&A activity expenditure per household decreased surrounding The troubled Spanish financial system by an additional 6% in 2011 compared (primarily its problematic solvency the Spanish to 2010. This, in turn, has had a ratios), the impairment of real estate profoundly damaging effect on economy, which has assets and the ongoing precariousness industrial and business activities, surrounding the EU zone has slowed significantly affected especially in sectors that rely most on investment and inhibited M&A in Spain. financing and sectors that tend to be consumers, businesses However, some important dynamics more cyclical in nature. and financiers alike, is have emerged which are driving Consumer branded goods companies M&A activity. (especially those below the luxury and expected to continue. Foreign companies are acquiring premium classes) have been affected Spanish consumer companies to We expect consumer as the overall sector encompasses a take advantage of opportunities variety of highly cyclical sub-sectors. M&A activity in Spain arising from the lowered EBITDA to be dominated by Nonetheless, even in this challenging multiples valuation expectations. environment the margins of Spain’s Spanish companies have developed largest consumer groups, including cross-border deals. overseas acquisition strategies to Grupo Inditex (Zara, Massimo Dutti, supplement stunted domestic Divestment of non- Bershka), Grupo Fagor (Fagor, Edesa, consumption. We expect the focus Aspes), and BSH Electrodomésticos, strategic assets by to be on emerging South American are all expected to remain buoyant. companies trying to companies. optimise their core Companies will continue to divest Cosmetics and apparel non-strategic assets, with the business operations attractive intention of preserving their businesses by focusing on will also likely In the midst of all of the economic optimising their core activities. continue.” uncertainty, deal activity has remained relatively stable with volume and Iñigo González Gaytán de Ayala, average deal value peaking just before Multi channelled sales Norgestion the height of the downturn. There was developing some notable activity in the CF&T segments. Of note was the acquisition The development of online sales and of multi-faceted cosmetic products other channels of distribution, as well firm Dermofarm Laboratorios S.A by as the innovation and development pharmaceutical and personal care of new products and services have specialists Istituto Ganassini Spa been, and will continue to be, Ricerche Biochimiche. some of the more important factors driving activity. Deals in footwear and apparel retail have also featured and included JD Sports Fashion’s acquisition of a stake in sports retailer Sprinters and Atlas
Deal Focus - Spain 34 Industry insight Where would you be most willing as well as individuals. Banks are to invest globally? heavily restricting credit lines. Unless Name: Carlos Gordillo Cruz this gets resolved, a return to a Company: ProA Capital As a regional Iberian fund (Spain and growth path and an auspicious Position: Investment Director Portugal), our investment strategy M&A market will be delayed. has been very conservative. 2010 was a year of lows with regards to entering a market; however, that is Are you worried about the starting to recover. We are still wary general fiscal status domestically of a second recession which we and its effect on the consumer believe is entirely possible. With this goods sector? in mind, we believe it is key to invest It is expected that the recent change only in top class assets with good of government in Spain will reduce exposure to markets with better the tax burden on people and economic perspectives - i.e. Latin businesses, which should have America exposure in the case of a positive impact on savings Spain. With that said, if the and consequently consumption European crisis does not get long term. resolved, emerging economies will also be impacted. How do you feel about M&A in What do you expect to be the consumer goods over the next main domestic driver of M&A 18 months? What do you consider to be the activity in the consumer goods most significant obstacle to M&A industry over the next 18 months? Pessimistic. Even if our focus was on activity in the consumer goods all of Europe, we do not foresee a sector? Recovery in the acquisition debt better scenario panning out over the financing market, which today is very next 18 months. In our opinion the The lack of liquidity in the system. limited, especially in the mid-market market will continue along with low Banks are facing serious problems segment. With a complex organic M&A activity and difficulties in raising financing their balance sheets. These growth scenario, value creation for acquisition debt due to global debt problems have been passed down to private equity deals should come market restrictions. companies (which are having trouble from companies deleveraging. investing or even financing their working capital requirements),
Recent transactions M&A activity
Date Target Description Acquirer Deal Value 30 70 (US$m) 60 Dec 11 Punt Mobles S.L. Furniture Valcapital Gestión n/d 25 m e $ m SGECR, S.A. 50 e u u l 20 l
Jul 11 Eureka Kids Toys Nazca III 14 o a v v
40 l n a o i Jul 11 Comdipunt S.A. Apparel & clothes Barcel Euro S.L. n/d 15 e t d
c 30 e a s g
n 10 Jun 11 Sprinter Apparel & clothes JD Sports 29 a r
a 20 r Megacentros Fashion Plc (UK) e T v May 11 King Espana Household products Bunzl Plc n/d 5 10 A Complementos S.L. (UK) Mar 11 Grupo Tino Apparel & clothes Atlas Capital 15 0 0 Gonzalez Private Equity 2008 2009 2010 2011 Nov 10 Misako Apparel & clothes Garcia Family; n/d Torres Family Total deal volume Oct 10 Mediterranea de Household PHS Serkonten n/d Servicios products Source: Capital IQ and Mergers Alliance Analysis Average deal value $m Oct 10 Suquinsa S.A. Personal care Ubesol, S.L. n/d
Jul 10 Pepe Jeans, S.L. Apparel & clothes L Capital 112 Management (Fra)
Deal Focus - Spain 35 United Kingdom Understanding consumer However the changing shape of the demands key to success consumer industry with a shift from ‘bricks and mortar’ to online retailing The key to success in the UK during has changed the M&A focus of private the economic downturn has been equity. Competition for online assets understanding changing consumer from trade acquirers has driven up demands. Consumers increasingly valuations as evidenced by the want customised products and more acquisition of Kiddicare by retailer personalisation. Furthermore due to Morrisons plc for US$110m (23 x “Consumer increasing internet access, consumers EBITDA). Private equity have competed are better informed about prices and hard to make some high profile demands have products. The internet has also created investments including Bridgepoint’s a more informed consumer with recent secondary buy-out of Wiggle, changed purchasing decisions based on reviews formerly owned by ISIS. and social media comments. The markedly of There has been less activity in the consumer has become impatient and UK consumer goods sector although late due to both the demands real-time service 24/7 with luxury and premium branded product products available at any time through economic environment businesses have continued to attract any channel. and the proliferation of significant multiples such as the The successful consumer products acquisition of Jimmy Choo by online retail. This has companies have adapted their business Labelux and acquisition of Kurt models both organically and by Geiger by Jones Group. created new acquisition to ensure online platforms opportunities for and multi-channel marketing and sales strategies can be implemented to meet Beauty products sector companies and these changing consumer demands. displays the lipstick effect investors and driven The lipstick effect is the theory a lot of the recent M&A activity focused that when facing an economic crisis on distribution consumers will be more willing to buy M&A activity in the lower price point premium products industry. We expect Historically, the UK high street has that still generate the feel good factor. proved attractive to investors due to the For example instead of buying this to continue for predictable, sustainable cash flows and expensive designer coats, people the ability to roll out successful formats. will still buy expensive lipstick and some time.” A significant amount of the UK high cosmetics. street has been bought and sold by The M&A appetite for beauty products Steve Currie, private equity over the last 5 to 10 has also continued through the Catalyst Corporate Finance years. economic downturn as evidenced by the investment by private equity firm LDC in Original Additions, the acquisition of Liz Earle by Avon and the acquisition of St Tropez by PZ Cussons for US$98m, which was an exit for LDC.
Private equity continues love affair with brands Private equity has a long established track record in the UK of working with owner managers to expand the distribution of consumer branded products in the UK and overseas markets.
Deal Focus - UK 36 The trend has continued through the M&A activity has polarised between economic downturn although the focus luxury or premium branded businesses has moved away from single channel at one end of the market and retail distribution to multi-channel discounters at the other. The mass distributed products including high market has increasingly become street retail, online, mail order and less attractive due to the lack of television. differentiation and competitive advantage of many businesses. They have also been active in more traditional consumer product areas The consumer sector has suffered where the downturn in the market has as the UK government’s austerity resulted in ‘category killers’ with strong measures impact on consumer consumer brands, which have confidence. With the IPO market for increased market share in declining businesses likely to remain closed markets as competitors have failed through 2012 and an increasing in the more testing economic nervousness from debt providers we environment. This is evidenced expect corporate acquirers to continue by the acquisition of Brintons, the to consolidate consumer markets to manufacturer of carpets by The Carlyle offset the slower rate of growth in their Group and the acquisition of Sharps core business. bedrooms and bathrooms by Sun European Partners. We expect further similar opportunities to emerge.
M&A outlook for 2012 The M&A environment for the consumer sector has become tougher with increasingly volatile trading conditions and a darker consumer outlook. Corporate buyers have regularly outbid private equity for many transactions paying valuations of 10 x to 20 x plus EBITDA.
Recent transactions M&A activity
300 Date Target Description Acquirer Deal Value 100 (US$m) 90 250 Dec 11 Wiggle Online cycling and Bridgepoint Capital 288 80 m $ e e
sporting goods m
70 u u l
l 200
Dec 11 Jacques Vert Womens clothing Sun Capital 66 a o
60 v v l n 150 a e
o 50
Sep 11 Brintons Residential and The Carlyle Group 32 i d t c
commercial carpets 40 e a g
s 100 Jul 11 Moonpig.com Online card retailer Photobox 192 a n
30 r a e r v
T 20 Jul 11 Original Beauty products LDC n/d 50 A Additions 10 Jul 11 Sharps Bedrooms Bedroom and home Sun European n/d 0 0 office furniture Partners 2008 2009 2010 2011 Jul 11 Myprotein Sports supplements The Hut Group 95 and nutrition Total deal volume May 11 Jimmy Choo Shoes and LABELUX Group 932 Source: Capital IQ and accessories (Germany) Mergers Alliance Analysis Average deal value $m May 11 Silentnight Group Beds and H.I.G. Europe n/d mattresses May 11 Jojo Maman Bebe Maternity wear and Magenta Partners n/d baby clothing
Deal Focus - UK 37 Sector Report 2012 Contacts
International corporate finance
Australia Finland Poland Austria France Russia Belgium Germany Singapore Brazil India South Africa Bulgaria Italy Spain Canada Japan Sweden China Luxembourg Switzerland Colombia Mexico Turkey Czech Republic Netherlands UK Denmark Norway USA
Mergers Alliance is a group of award winning Stas Michael corporate finance specialists who provide high Mergers Alliance quality advice to organisations that require +44 207 881 2990 [email protected] international reach for their M&A strategies. Over the past 12 months our partner firms Andre Johnston have collectively completed over 100 deals, Mergers Alliance in 30 countries worldwide with an aggregate +44 207 881 2967 value of over US$3 billion. [email protected]
Consumer Goods - Contacts 38 Americas
Brazil Mexico USA Felipe Monaco Christian Garcini Garcia Brian Mulvaney BroadSpan Capital Sinergia Capital Headwaters MB +5521 3873 8000 +52 55 2167 1810 +1 49 706 8440 [email protected] [email protected] [email protected]
Asia, Africa and Middle East
China Japan Andre Johnston Tomoki Tanaka Mergers Alliance IBS Yamaichi Securities +44 207 881 2967 +81 3 6895 5521 [email protected] [email protected]
India Turkey Sujay Kotak Ozkan Yavasal Singhi Advisors Daruma Corporate Finance +91 22 6634 6666 +90 212 370 60 60 [email protected] [email protected]
Europe
France The Netherlands Spain Michel Degryck Bart Jonkman Iñigo González Gaytán de Ayala Capital Partner BlueMind Corporate Finance Norgestion +33 148 246 300 +31 73 623 8774 +34 943 327 044 [email protected] [email protected] [email protected]
Germany Poland United Kingdom Stefan Constantin Michael Harvey Steve Currie CH Reynolds Corporate Finance IPOPEMA Securities Catalyst Corporate Finance +49 69 97 40 30 0 +48 22 236 9200 +44 20 7881 2990 [email protected] [email protected] [email protected]
Italy Russia Nuccia Cavalieri David Wolfe Ethica Corporate Finance Northstar Corporate Finance +39 02 92 88 04 00 +7 495 937 5855 [email protected] [email protected]
Consumer Goods - Contacts 39 Sector Report 2012 Transactions
Mergers Alliance consumer goods transactions
India / France USA Netherlands
Sale of Maharaja Whiteline Sale of Provo Craft to BAML Sale of IMS (Gymna Uniphy) Industries to Groupe SEB Capital Partners to Uniphy
India / Japan Turkey France
Sale of The Bombay Burmah Trading Corporation to Advisor on Project Financing of Acquisition of Afibel by Aica Kogyo Co Gulsan Sentetik Dokuma San Damartex SA
Poland UK Italy / France
Advisor on the IPO of Advisor on the Management Sale of Dondup Harper Hygienics Buyout of Farrow and Ball to LVMH
USA UK Netherlands
Sale of Ariat International to LNK Partners and Brentwood Advisor on Debt Restructuring of Sale of King International to Associates Original Additions M&R De Monchy
Consumer Goods - Transactions 40
International corporate finance
Australia Finland Poland Austria France Russia Belgium Germany Singapore Brazil India South Africa Bulgaria Italy Spain Canada Japan Sweden China Luxembourg Switzerland Colombia Mexico Turkey Czech Republic Netherlands UK Denmark Norway USA
www.mergers-alliance.com