Global consumer M&A activity in 2019 fell to EUR 190bn (2,012 deals) from EUR 217bn (2,199 deals) a year prior, Mergermarket data shows. The drop in global values was mainly due to the substantial decrease in deal values in the US, down 35% to EUR 66.3bn. Deal values in Asia were remarkably consistent at EUR 55.4bn in both years. Yet Europe booked consumer deals worth EUR 44.7bn in 2019, 26.4% up from 2018, even as the number of deals slipped a notch from 959 to 955.

Strategic buyers accounted for Europe’s increase in deal value. Private equity (PE) was comparatively muted, with 2019 recording the lowest buyout values and volumes of the last five years at EUR 8.1bn across 175 deals (2018 recorded EUR 9.2bn across 188 deals; 2017 booked EUR 19.4bn across 194 deals). Only three of the top 10 deals of 2019 featured a financial sponsor as buyer.

Indeed, rather than buyouts, financial players’ main contribution to Europe’s bumper crop of M&A was on the exit front. Mergermarket’s database registered 117 exits worth EUR 14.9bn, compared to 97 exits worth EUR 7.7bn in 2018. The sale of UK-based Avon Products by Cerberus Capital to Natura Cosmeticos of Brazil for EUR 4.4bn was the largest PE exit of 2019.

Regional breakdown: mid-market madness

A handful of megadeals in 2019 gave some European regions an outsized share of M&A activity. Benelux led with 27.9% of Europe’s consumer total deal value – and a more trivial 12.5% share of deal volume – thanks to EssilorLuxottica’s [EPA:EL] proposed EUR 9.3bn takeover of GrandVision [AMS:GVNV] to form the world’s largest eyewear retailer. This was also the largest deal of 2019.

The UK & Ireland had a few large-cap acquisitions, such as Saputo’s [TSX:SAP] EUR 1.4bn purchase of Dairy Crest, and the aforementioned Avon Products one. These multibillion-euro mergers meant that the UK & Ireland’s share by value was 21.9%, ahead of its 15.6% share by volume. However, these two deals were exceptions; beyond them, mid-market activity dominated UK dealmaking in 2019. Uncertainty about Brexit is no help, but the issue has long suppressed sterling and has not totally dampened M&A activity.

France accounted for 10.7% by value, and 15.4% by volume; its deals were small and many, with just one above EUR 1bn, the sale of Laboratoires Filorga to Colgate-Palmolive [NYSE:CL]. Yet, as befits a country led by a banker who advised Nestlé [SWX:NESN] on its EUR 9bn acquisition of Pfizer Nutrition in 2012, French firms did big deals elsewhere. EssilorLuxottica took on Grandvision, LVMH [EPA:MC] bought US-based Tiffany for EUR 15.1bn, and Casino [EPA:CO] rejigged its holdings in Brazil’s CBD [BVMF:PCAR4] and Colombia’s Almacenes Exito in a pair of deals respectively valued at EUR 2.3bn and EUR 1.3bn. Kering’s [EPA:KER] rumoured interest in Moncler [BIT:MONC] could continue this trend in 2020.

Italy’s share was 9.8% by value and 13.7% by volume. As in its Gallic neighbour, M&A was active but small-ticket; the largest deal was the EUR 1bn sale of one grocer, Auchan Italia, to another, Conad. A takeover of Moncler, which sports an EUR 11bn market cap, would propel the country up the rankings.

CEE had 8.7% by value, and 10.4% by volume. Severgroup’s EUR 2.4bn acquisition of Russian grocer Lenta was the richest transaction, but the last mid-cap deal of the year – Lithuanian online clothing vendor Vinted’s EUR 128m sale to five private-equity houses – suggests a future speciality for CEE M&A, as the Baltic tech scene draws growing interest.

Germany, which spent 2019 on the edge of recession, featured only small- and mid-cap deals. DACH represented a piddling 6.5% of deals by value, but 12.8% by volume, as big-ticket M&A fell silent while aging boomers cashed out of the Mittelstand.

Iberia accounted for 8.3% by value and 7.9% by volume. Portugal saw a smattering of smaller deals, the most notable being the EUR 21m sale of food and tobacco distributor Augusto Duarte Reis to conglomerate Grupo BEL. As the centre-left Socialists won a renewed mandate in last October’s elections, Portugal’s political outlook and modest economic growth suggest placid environment for small-cap M&A in 2020. Across the Minho, turmoil. Last year Spain saw two elections, its far right was ascendant, separatists rioted in Catalonia, and only by entering a coalition with the far-left Podemos did the Socialists cling to power. Uncertainty and extremism normally bode ill for M&A; nobody expects the Spanish acquisition!

Investment fund L1 Retail bought Spanish grocer DIA, valuing it at EUR 1.9bn. Another PE firm, Platinum, paid EUR 500m for frozen seafood supplier Grupo Iberica de Congelados. Filliped by its food industry and hungry foreign financial players, Spanish M&A survived a tumultuous 2019. If Spain’s new government can lead from the centre without risking yet another election, Iberian M&A could see a reconquista of Mergermarket’s rankings.

Finally, the Nordics registered 4.8% by value and 10.1% by volume. Amid a litany of smaller transactions, Oriflame led the region as the Swedish cosmetics firm’s founding family, the af Jochnicks, repurchased its outstanding shares for EUR 825m, at an EV of EUR 1.4bn.

Retail and personal care lead the way

Of Europe’s top 10 deals in the consumer sector, eight featured in the retail and personal care segments – five and three, respectively.

Retail is seeing a rush by investors to adapt to profound change. Even as “certain retail business models are either going out of date or are being forced beyond the realms of commercial viability”, parts of the retail space are well-placed to attract investment, James Sawley, head of retail at HSBC, said. Those with disruptive business models who have proven that they are able to make a profit while winning market share from traditional players have attracted the lion’s share of investment, he added.

One example is Marks & Spencer’s [LON:MKS] GBP 563m (EUR 657m) acquisition-in-all-but-name, structured as a joint venture, of online grocer Ocado’s [LON:OCDO] UK business.

Players with premium, iconic brands and strong market positioning also remain among the most attractive assets to invest in. For instance, Permira acquired a majority stake in Italian luxury sneaker company Golden Goose from Carlyle in February, valued in excess of EUR 1bn. Meanwhile, Carlyle has already set its sights on British footwear brand Dr Martens, which Permira is reportedly looking to exit for a valuation also in excess of EUR 1bn.

Globally, last year’s average EV/EBITDA multiple paid for retail targets was 20x, above the 14x for consumer food players, and the 12.6x for all other consumer businesses, Mergermarket data show. Moreover, 2019’s retail multiple is higher than in any other year on record, whereas the multiples for both the consumer foods and other consumer categories have fallen each year since peaking in 2017.

As for cosmetics and personal care, the space saw 90 deals in 2019, up from 64 in 2018, Mergermarket data show. The acquisition in May of Avon by Natura was the sector’s second biggest deal in Europe. That same month, Oriflame’s shareholders accepted the af Jochnicks’ offer. In July, US-based household name Colgate-Palmolive agreed to buy French Filorga for nearly EUR 1.5bn to expand its portfolio in premium skincare, and Canada’s KDC spent EUR 41m on Somerset-based Swallowfield’s cosmetics-manufacturing division.

Investors’ interest in this space appears set to carry into 2020. Among deals in the pipeline is online UK beauty retailer Cult Beauty, which has reportedly hired JP Morgan to find a buyer after receiving several takeover approaches. Sizable prestige skincare companies that are also doing well in the US or Asia will be in demand for potential investors, Kerem Akcay, MD in consumer & retail investment banking at HSBC, said. The reported sale by US cosmetics company Coty [NYSE:COTY] of its professional beauty brands, including German Wella and UK-based GHD, valued at USD 7bn (EUR 6.3bn), should also feature among this year’s top consumer deals.

Healthy and diverse pipeline ahead

M&A activity is expected to remain uneven across subsectors in 2020. “We are not seeing specific catalysts in terms of market confidence”, Akcay said. The risk of a global recession, the uncertainties around Brexit and the trade spat between US and China, among other factors, all weigh on M&A activity in the space.

But just as cosmetics emerged in 2019, so too should other active subsectors emerge in 2020. Consumer companies on the edge of consumer tech; players in the alternative food segment, such as plant-based foods; and companies operating in the premium space, including pet food, will all be high on investors’ agendas, Akcay said.

In consumer tech, the recent EUR 7.4bn takeover of Just Eat by Takeaway.com [AMS:TKWY] will create the world’s biggest player in the food-delivery market and may pave the way for more tie-ups in the food delivery space.

The pipeline also features Lily’s Kitchen, a UK-based pet-food supplier that has hired Houlihan Lokey for a sale; and UK-based vegan-food manufacturer Gosh!, which has reportedly attracted interest from LDC and Ambienta.

The abundance of dry powder in PE hands means sponsors are well-placed to acquire assets resulting from strategic carve-outs as some consumer firms streamline their portfolios, as well as targets operating in attractive niches of the consumer sector.

Last year’s acquisition of Galderma – formerly Nestlé Skin Health – by a consortium led by EQT Partners and Abu Dhabi Investment Authority from Nestle for EUR 9bn could augur a return to form for financial buyers looking to deploy record amounts of capital in 2020.

by Deane McRobie and Barbara Pianese in London, with analytics by Thorsten Louie Pedersen

Deane McRobie Senior Reporter Mergermarket

Deane McRobie is a senior reporter in London for Mergermarket and its affiliated publications Dealreporter, Activistmonitor, and PaRR. His reporting focuses on the consumer, retail and leisure sectors, including scoops on such megadeals as AB InBev’s acquisition of SABMiller, British American Tobacco’s purchase of Reynolds American, and EssilorLuxottica’s bid for Grandvision. Originally from Canada, he graduated from McGill University with a degree in political science and East Asian language studies in 2013, obtained a certificate from Harvard Business School in 2015, and, before moving to the UK, was a political journalist in Ottawa.