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  • 1. Global Consumer GoodsSector Report 2012 www.mergers-alliance.com
  • 2. Sector Report 2012Contents Report 2 Introduction 3 Report Highlights 4 Deal Focus by Country Americas Brazil 8 Mexico 10 USA 12 Asia, Africa and Middle East China 14 India 16 Japan 18 Turkey 20 Europe France 22 Germany 24 Italy 26 The Netherlands 28 Poland 30 Russia 32 Spain 34 United Kingdom 36 Contacts 38 Transactions 40Consumer Goods - Contents 1
  • 3. Sector Report 2012 pReportAbout the reportThis sector report was edited by For more information on this Other sector reports availableAndre Johnston of the Mergers report please contact Andre to download from mergers-Alliance central team. To compile Johnston, Mergers Alliance alliance.com include:our findings we conducted Research Manager. Global Cleantech Reportinterviews with our sector expertsfrom each member firm within the Andre Johnston Global Engineering ReviewMergers Alliance partnership. We Mergers Alliance Global Food & Drinkalso surveyed owners and senior +44 207 881 2967executives within consumer good andrejohnston@mergers-alliance.com European Plastic Packagingsector organisations and privateequity investors worldwide.Deal FocusWithin each country’s Deal Focus overview of the consumer goods Key terminology: FMCG (Fastwe review merger and acquisition sector as a whole, highlighting the moving consumer goods)(M&A) activity, focusing on key market structure as well as CF+T (Cosmetics, fragrancesdeals and trends within the commenting on the key trends and toiletries) y-o-y (year onconsumer goods sector with an and the factors influencing M&A. year), CAGR (Compound annualemphasis on branded goods. growth rate) BRIC (Brazil, China, We provide our own insight on India, Russia). All deal values areWe have included tables of how we think the market might in US dollars unless otherwiserecent transactions where the play out over the coming 18 stated.target company is located in months and attempt to identifythe country under review. key investment opportunities.Additionally, we provide anDisclaimer not be acted on or relied upon or used as a this cannot be guaranteed and neither basis for any investment or other decision or Mergers Alliance nor any of its member firmsThis publication contains general information action that may affect you or your business. or other related entity shall have any liabilityand is not intended to be comprehensive nor Before taking any such decision you should to any person or entity which relies on theto provide financial, investment, legal, tax or consult a suitably qualified professional information contained in this publication,other professional advice or services. This adviser. Whilst reasonable effort has been including incidental or consequentialpublication is not a substitute for such made to ensure the accuracy of the damages arising from errors of omissions.professional advice or services, and it should information contained in this publication, Any such reliance is solely at the user’s risk. Consumer Goods - Report 2
  • 4. Sector Report 2012Introduction Caution and uncertainty continue to affect the major economies and depress consumer confidence levels, especially in the US and Europe. Whilst the consumer product industry has been particularly exposed to the prevailing economic conditions we are optimistic that confidence will improve in 2012, creating new opportunities across all consumer markets.As you will see from our report, 2012 and beyond: how emerging seek growth through acquisitions,mergers and acquisitions (M&A) markets are critical to consumer wish to restructure or realise valueactivity in the sector has been product company growth; why in your business, our internationalprogressively rising since the multi-channel sales strategies are advisors are in a unique positionnadir of the global downturn in driving investment activity and to help you. Our member firms2009. The report highlights that how companies at the value, have a prominent position indespite very challenging markets premium and luxury ends of boardrooms across the world andtransactions are being completed consumer markets are benefiting are renowned for delivering anin many different consumer from those operating in the award-winning partner-ledsegments and geographies. middle of the market. Our work advisory service with seamlessIn addition a large proportion also highlights the level of private international cooperation.of these deals are cross-border equity investment in the sectortransactions reflecting the and how mid-cap companies and We hope you find our reportincreasingly global characteristics global corporates are shaping enlightening and welcome anyof the sector. their acquisition strategies. feedback on our observations and conclusions.Our report also contains a great As the global recovery takes hold,deal of market-leading insight into we at Mergers Alliance are ideallythe key issues facing the sector in placed to help you. Whether youAndy CurrieChairman of Mergers AllianceManaging Partner of Catalyst Corporate Finance LLP+ 44 207 881 2960andycurrie@catalystcf.co.ukConsumer Goods - Introduction 3
  • 5. Sector Report 2012 p g gReport Highlights We at Mergers Alliance believe the main factors to shape M&A in the consumer goods sector over the next three years will be: Consumer confidence ready to recover Whilst there remains much uncertainty in the global economy, the latest consumer polls indicate that consumer confidence has reached a plateau and that tentative signs of a recovery are emerging (see Figure 1). Figure 1: Consumer confidence 120 10% Consumer Confidence 110 Unemployment Rate 100 9% 90 80 8% 70 7% 60 50 6% 40 5% 30 20 4% 10 11 08 07 09 10 07 10 08 08 1 12 9 01 00 20 20 20 20 20 20 20 20 20 20 20 t2 r2 ay ay v g p c ar b n n n No Oc Ap De Au Se Fe Ju Ja Ja M M M United States of America - Consumer Confidence Index United States of America - Unemployment Rate We expect this recovery in consumer confidence, which may be slow initially, to feed into consumer markets over the next two years. Consequently this will further stimulate corporate and institutional investment and M&A activity across the consumer goods sector (see Figure 2). Figure 2: Total deal volume global 1200 Transaction volume 1000 800 600 400 200 0 2008 2009 2010 2011 Consumer Goods - Report Highlights4
  • 6. Emerging markets risingConsumer goods companies haverecognised that emerging markets area requisite for growth rather than justa complementary source of revenue.We expect this corporate focus to drivemore Western investment into emergingeconomies directly through acquisitionsor joint ventures.Our research shows the rise ofconsumer sector M&A in emergingmarkets and in particular Asia. Since2008, the proportion of M&A in theseeconomies has increased by over a fifthto represent 30% of all deals globally(see Figure 3).Figure 3: Emerging markets 4% 1% 100 Africa and the Middle East 90 Asia Pacific 80 Latin America & CaribbeanM&A Deal Volume 70 60 50 40 30 20 25% 10 0 M&A Volume 2009 M&A Volume 2011 Rest of World Europe and North AmericaThe deal flow is two way. Indianconsumer companies Godrej andGitanjali have been among the ten mostactive acquirers globally over the pastthree years, having completed 15 dealsbetween them. As with other BRICheadquartered multinationals, they haveset ambitious growth plans and haveacquired branded goods companies inboth developed and other developingcountries.Consumer Goods - Report Highlights 5
  • 7. Sector Report 2012 p g gReport Highlights Adoption of multi-channel Private equity continues sales approach driving its love affair with M&A consumer brands Almost all consumer product The private equity industry has an companies have adopted a multi- established track record of working channel retail distribution model, which with private businesses to expand the“M&A is now one of themain growth strategiesfor consumercompanies domiciled included high street retail, online, mail order and television distribution. Online shopping accounted for the majority of overall retail sales growth in a number of developed markets during 2011 and is set to continue to dominate growth. distribution of consumer branded products in most developed countries. This trend has continued through the economic downturn although the focus has moved away from single channel retail distribution to multi-channelin mature economies. distributed products. ” Companies in the US, UK, Germany and the Netherlands have been Some of the more well known specialist particularly active in acquiring online sector investors such as L Capital and businesses and we expect further Change Capital have been active consolidation to occur across the recently as well as global players like developed economies. Carlyle Group, Oaktree Capital, Eurazeo and Blackstone Group. The Chinese market is forecast to become the biggest home shopping market globally – the B2C e-commerce market growing at 75% CAGR up to High prices paid for 2014. It is inevitable that successful high-end brands local online businesses will be targets During the past three years corporate of both acquisitive overseas and and private equity activity in the luxury local buyers. and premium segment has risen to reflect the increase in demand for premium goods from Asia, Russia Pressure on brands and South America. has intensified European luxury brands have been in Consumers in developed markets have particular demand and commanded been increasingly focused on price and high prices. The leading French luxury brand equity. Whilst this has meant conglomerate LVMH has made seven growth at both the premium end and acquisitions since 2008 including Italian value end of the branded goods jewellery maker Bulgari. Jimmy Choo, spectrum, there has been intense the iconic British lifestyle brand, was competition and margin pressure in acquired for c. $930m by Labelux, the the middle. Many of these brands have Austrian firm, which includes Bally and found themselves competing directly Belstaff amongst its portfolio. VF Corp, against their distribution networks, the leading US branded apparel which have developed private labels conglomerate, acquired Timberland offerings – currently growing at 10% for $2.2bn, at a valuation of 12.3x in the US and 6% in Europe. historic EBITDA. This has created a number of ‘distressed’ sales and both corporate and private equity investors such as Sun Capital have capitalised on these opportunities. We expect further distressed opportunities to emerge in the short term. Consumer Goods - Report Highlights 6
  • 8. We expect to see the luxury and ceiling in terms of organic growth duepremium brand conglomerates to the mature and consolidated naturecontinue to consolidate the market of their respective markets, will beand provide the best exit route for compelled to pursue globalisationinvestors, who would have considered strategies.an IPO in previous years. The larger multinationals already have global sales and distribution operations, and are generally the first to acquire inCompanies in lower emerging markets however, we expectgrowth, mature to see more mid sized businesseseconomies need acquire in BRIC countries as the risks become more understood and the M&Ato acquire approach more accepted.M&A is now one of the main growthstrategies for consumer companiesdomiciled in mature economies.Companies that have reached aConsumer power One billion new middle class consumersA consumer tidal wave is on its wayin the form of the BRIC countries. 1600 1,350Whilst the economies in each countryvary significantly, their consumer 1400markets are characterised by a largelyuntapped rural consumer population, 1200expanding middle classes and the highincome disparities between the rural 1000and urban populations. It is estimated Chinathat one billion more consumers will 800emerge in less than 15 years. 600Whilst the consumption of basic goodssuch as food, beverages and clothing 250 400have grown most in line with GDP, the Indiaconsumption mix is changing. Certain 200sub-sectors, such as skin-care in Chinaand India and cosmetics and baby Brazil 0 Othersdiapers in Brazil, are growing fasterthan GDP. As a result, competition Year 2009 Year 2025for local brands is intensifying andacquirers are paying high premiums as Source: McKinsey & Companyconsolidation takes place. We expectpremiums to remain high as demandfor these brands and companiesexceed supply.Consumer Goods - Report Highlights 7
  • 9. Brazil A BRIC success The baby diapers segment has experienced double digit growth over Brazil’s appeal to investors grows day the past few years - a trend that is by day and is quickly becoming one expected to continue due to the of the most appealing of the BRIC’s increasing purchasing power thanks to its booming economy and of the consumer and relatively improving business conditions. high birth rates. Brazilian GDP grew 7.5% in 2010 and is estimated to expand by 3.4% in “With the rise 2012, mainly driven by its internal Footwear IPO alerts sellers market, which benefits from record high in consumer employment and rising income levels. Arezzo, Brazil’s leading footwear company that holds an 11% market income and This social migration process is share and operates through franchises reaching over 30 million people who are the emergence as well as its own stores, went public in either joining the consumer base or are January 2011 raising US$339m. A large increasing their consumption habits.of 30 million new chunk of the proceeds (roughly 35%) The upper, middle and lower-middle will be used to acquire smaller brands.consumers, the (or A-B-C) income segments now It has been reported that other localBrazilian consumer represent 74% of the population vs. footwear companies are also currently 49% in 2005 thanks to the sharp seeking acquisitions both domesticallymarket has attracted increase in lower income consumer and overseas. Expect substantial spending power. A strong commitment consolidation activity in this sub-sectorglobal attention. to economic stability, along with a over the next 18 months.Despite substantial structurally sound financial sector, has contributed to consumer confidenceconsolidation in recent and capital expansion which shouldyears there are still have a positive effect on general economic growth.plenty of M&Aopportunities.” Population increaseFelipe Monaco, driving diaper marketBroadspan Multinationals are becoming increasingly attracted to the baby diaper segment. In September 2011 personal care giants Svenska Cellulosa Aktiebolaget (SCA) acquired baby diapers and wet wipes specialists Strong private equity Pro Descart Indústria E Comércio involvement for US$71m. Private equity involvement in the Domestic consolidation is also taking Latin American market is becoming place, in August 2010 multi-billion increasingly evident. dollar Brazilian conglomerate Hypermarcas acquired the Brazil based The Carlyle Group looked to expand its diapers, tissues and feminine care consumer portfolio by acquiring a 51% producer Mabesa from Grupo PI Mabe stake in Scalina, Brazil’s largest in a US$195m transaction which manufacturer and retailer of women’s represented an estimated 8.5 x EV hosiery and lingerie, for approximately to EBITDA ratio. Hypermarcas also US$160m. In the last five years, the acquired two other leading diaper Brazilian lingerie market has outpaced Brazilian companies (Pom Pom in GDP growth by circa 100%; a figure November 2009 for US$173m and that can be attributed to the Sapeka in March 2010 for US$211m) proliferation of the middle class and establishing its national leadership with the rising number of women with a 35% market share. expendable incomes. Deal Focus - Brazil 8
  • 10. Indeed, women are quickly becoming Due to the highly fragmented nature ofa major economic force and are the apparel market in particular (the topexpected to have a profound effect five players hold just 16% of the totalon consumption habits. The cosmetics, market share) we expect the growingfragrances and toiletries (CF&T), eagerness to buy brands rather thanfootwear and apparel segments generic to drive M&A directed atare all expected to be boosted. emerging Brazilian clothing brands.Closer to home, in May 2011, LatinAmerican private equity fund SouthernCross acquired a controlling stake in E-commerce maturingBrinox, a kitchenware manufacturer Local consumer firms that havewith revenues of US$80m in 2010. traditionally sold their brands in retailApart from the major players, the stores are expanding into e-commerce,kitchenware market is highly a channel growing at over 30% perfragmented and Southern Cross hopes annum. Consequently, we anticipateto benefit by continuing its buy and moves by consumer firms looking tobuild strategy - acquiring other expand their distribution network toassociated brands through Brinox. acquire domestically domiciled online retail specialists. Overall, the Brazilian consumer marketConsumers switching has experienced a boom in recentto brands years, however several inefficiencies still exist, such as fragmented markets.Although Brazil is becoming This should nonetheless encourageincreasingly prosperous, the consumer major consumer players, foreignbase is still composed of mostly lower and domestic, that have their ownto middle income consumers; distribution channels and thatconsequently pricing is still central to rely on economies of scale.consumer choice. However, brandinghas been gaining traction over the pastseveral years with shoppers becomingmore willing to spend that extra amounton quality branded products.Recent transactions M&A activity 12 120 Date Target Description Acquirer Deal Value (US$m) 100 Average deal value $mFeb 12 Natura Cosmetics Lazard Asset n/d 10 Transaction volume Cosméticos S.A. Management LLC (USA) 8 80Oct 11 Bobstore Apparel InBrands 32Sep 11 Descart Indústria Baby diapers Svenska Cellulosa 71 6 60 E Comércio Aktiebolaget (Sweden)May 11 Brinox Kitchenware Southern Cross n/d 4 40 Metalúrgica Group (Argentina)May 11 Ecologie/ Cosmetics Bombril 9 2 20 Nick&VickFeb 11 VR Kidswear Apparel InBrands n/d 0 0 and VR Menswear 2008 2009 2010 2011Jan 11 Perfex (Johnson Household Hypermarcas 17 & Johnson) cleaning Total deal volumeNov 10 Colgate-Palmolive, Soap Hypermarcas 50 Source: Capital IQ and Pom Pom Soap Mergers Alliance Analysis Average deal value $mNov 10 Scalina Hosiery; lingerie The Carlyle Group 160 (USA)Aug 10 Mabesa do Diapers Hypermarcas 195 BrasilDeal Focus - Brazil 9
  • 11. Mexico Sound fundamentals Brand integration The Mexican consumer goods sector An increasingly common theme in swept through the global economic Mexican consumer oriented M&A downturn unimpeded, experiencing has been for diversified consumer 6% compound annual growth over the companies to buy smaller brands past three years. to then incorporate into their product lines. Consumer growth is expected to at least equal GDP growth which is In October 2010, Genomma Lab “The currently at 4%. Indeed, a rising middle Internacional SAB, a Mexico based class may push growth in consumer developer and marketer of over-the- development goods higher still. Other positive indices counter pharmaceutical and personal priority of include a relatively low inflation rate care products, agreed to acquire the (at 3.14%) and stable consumer Pomada de la Campana, Galaflex, many firms has confidence levels. Moreover, Affair, Vanart and Sante Haircare brands consumer credit is recovering after for a total consideration of US$85m.been outward of late to a sharp contraction in 2009 and is The brands, that reported combinedtake advantage of the expected to reach 2007 levels in 2012. annual sales of US$38m in 2009, will be incorporated into Genomma’s alreadyrapidly growing middle Overall deal volume in consumer goods extensive portfolio of over 90 brands has traditionally been low relative to theclass. Solid macro general market; however, it has beenfundamentals along steadily rising since 2009. Largest luxury marketwith the increase in in Latin Americaconsumer credit, rolled Multinationals investing The luxury goods market is the second in Mexico most important in Mexico after theout by both department mass segment. Indeed, Mexico rates Large multinationals have sought to above Argentina and Brazil with 55% ofand specialist stores, capitalise on concentrated sector the total sales of luxury goods in Latinhas led to a surge in growth. One such firm was Svenska America. According to AC Nielsen, Cellulosa Aktiebolaget, the Swedish 6,4 million Mexicans will have annualMexican consumerism. consumer goods giant and owner of incomes of over US$60,000 by 2030. brands such as Bodyform and Tempo.With this, Mexico In July 2010 it agreed to acquire A number of major international luxury brands rely on the affluent Mexicanremains one of the Copamex S.A, a baby diaper business consumer as much as they do the that targets the Mexican and Central European. Hugo Boss for examplemore attractive American market, for US$50m. The derives c. 15% of its global sales deal involves the rights to the brandsemerging market Tessy Babies and Dry Kids among from Mexico.propositions.” others and will take advantage of the growing Mexican and Central AmericanChristian Garcini Garcia, baby diaper market. Apparel acquisitionSinergia Capital opportunities We expect the trend of Mexican brands being bought with the intention of being integrated into the buying company’s product line to continue. We expect this trend to take place in the apparel sector in particular, where a number of successful local brands have emerged. These include: Deal Focus - Mexico10
  • 12. Julio: Quality clothing at low prices. It currently has 48 stores and 15 franchises in Mexico. Ivonne: The brand has positioned itself as one of the leading companies in selling fashion and “ The luxury goods market is the second most important in Mexico after the mass accessories to a wide segment of segment. Indeed, the female population. Has recently opened its first stores in the US. Mexico rates above Marsel: It currently has 20 stores Argentina and Brazil in shopping malls across the country, Marsel has been with 55% of the expanding at a fast pace. total sales of luxury Highlife: Clothing for men; one of goods in Latin the market leaders in the sector. America. Andrea: Catalogue sales of shoes with a large share of the Mexican market.In our view the above present a goodopportunity for foreign firms looking toinvest in the infrastructure of some well ”established and potentially high growthMexican brands.Recent transactions M&A activity 7 120 Date Target Description Acquirer Deal Value (US$m) 90 6 Average deal value $mOct 11 Scientific-Atlanta Set-top boxes PCE Paragon 45 80 Transaction volume de Mexico Solutions kft (Hungary) 5 70Aug 11 Moda Holding Footwear Nexxus Capital, n/d 60 S.A.P.I. de C.V. S.C. developer 4Aug 11 Various Brands Various brands Genomma Lab 85 50 Internacional SAB 3 40Jul 11 Toshiba Electronics Just International n/d 2 30 Electromex Ltd. (Taiwan) 20Oct 10 Colgate-Palmolive Personal care Genomma Lab 29 1 (Mexican brands) Interacional SAB 10Jul 10 Copamex, S.A. Personal care Svenska Cellulosa 50 0 0 de C.V. Aktiebolaget (Sweden) 2008 2009 2010 2011Mar 10 Laboratorios KSK Natural products Takashi Tsuru n/d company Kayaba Total deal volumeMar 10 Impco, S. de Household Sylvan Holdings n/d Source: Capital IQ and R.L. de C.V. appliances Pte. Ltd (Singapore) Mergers Alliance Analysis Average deal value $mJan 09 Iconix Brand Various brands New Brands 6 Group, Inc Americas LLC (USA)Aug 08 Barajas y Naipes Leisure equipment Cartamundi NV; n/d de Mexico Copag da Amazônia S.A.Deal Focus - Mexico 11
  • 13. USA Strategies change on remained relatively constant since 2008 through the end of 2011 macro deterioration at approximately 200 reported As goes the consumer so goes the transactions per annum. While most of consumer products industry and the the deals had undisclosed value and consumers throughout the world are terms, the ones that did disclose still recovering from the local and global exhibited an increased average recession and personal deleveraging. transaction size from a low in 2008 through 2010. This increase in the The US consumers buying behaviour average deal size was reflective of the “The US has fundamentally changed from the financial turmoil in 2008 in which many consumer mid-2000’s and consumer goods of the sellers were "distressed" and manufacturers and the retail channels buyers had limited sources of capital. products M&A will continue to have to adjust to this Average deal size spiked in 2010 as new buying paradigm. activity has there were five US$1bn+ transactions The continued contraction of credit including NBTY and Alberto-Culver forproven to be rather availability to the consumer (be it from US$4bn each, whereas the largest disclosed deal in 2008 was onlyresilient in this volatile credit cards, home equity loans, 401k) US$500m. combined with declining assets,environment. Given dropping consumer confidence and Approximately 13% of the companies increased unemployment, has madethe strong corporate the US consumer more price sensitive, acquired in the US have been bought by a non-US based entity. In 2011,balance sheets, and decrease discretionary spending and there was an increase in cross-border become more willing to consider transactions which was driven by thebacklog of aging alternative channels for key purchases. weak dollar and a desire for Europeanowners of privately-held The consumer goods manufacturers and Chinese companies seeking have also faced a dramatically "foothold" acquisitions in the US.CP companies, we are changing environment in the US.bracing for a strong Rising inflation on the back of monetary stimulus has meant that companies Large deals and hostilesurge of M&A activity have faced rising commodity prices takeoversover the next few years.” while at the same time being pressured VF Corp, one of the leading owners to maintain, if not lower, its retail pricing. Many branded companies of branded apparel companies, addedBrian Mulvaney, faced new competition from private Timberland to its portfolio in June 2011Headwaters MB in a US$2.2bn deal. This valuation was label offerings. In addition, companies remain challenged by tight credit a 40% premium to Timberlands recent markets, a volatile dollar and increasing stock price, 1.2 x revenue and 12.3 x employee benefit costs. EBITDA. Timberland, which was publicly traded but family managed, had suffered a decline in profitability and was facing investor criticism. By being acquired by VF, Timberland’s cost structure should improve and sales will benefit from VF’s global distribution network. VF, which owns such brands as Vans, North Face, JanSport, Reef, Wrangler and Lee has stated that it will continue to look to build its brand portfolio in all of its categories both in the US and overseas. Stable M&A levels Despite volatile economic conditions affecting the consumer space, the annual number of transactions has Deal Focus - USA12
  • 14. M&A driving company and direct response (e.g. infomercials grow, but brands that fall in the middle and direct mailers) continue to take a with medium quality at full prices willgrowth larger share of the consumer’s wallet, continue to decline.The US consumer goods market is which has required the consumer goods manufacturers to develop Lastly, US companies will have tocomprised of over 7,500 companies of multi-channel strategies. develop ways in which to enter thewhich only 330 are publicly traded and higher growth emerging markets suchjust over 1,000 are private equity Indeed, in order to compete, many as Brazil and China in order to fuelbacked. Of this group, 350 companies companies are challenging their growth and to establish sourcing anddisclosed revenue that totalled traditional business models in order manufacturing internationally in orderUS$323bn, lead by Procter & Gamble to deliver a better experience to the to lower costs and increase capacity.(P&G) with US$79bn and the next nine consumer. Some of these changesaccounting for US$114bn. While the larger companies already include brand building using social media, creating exclusive product have global sales and distributionOf note, the industry growth of the top features for retailers, changing networks, many of the mid-sizecompanies has been nominal with the warranty/return policies, willingness to companies (e.g. sales of $50-500top 10 companies only growing 0.6% offer private label products, entering million) do not. In order to mitigatein three years and 2.2% in five years, new countries and use of alternative the risk of these new market launches,whereas the top 50 companies have channels such as direct-to-consumer, US companies are becoming moregrown 1.5% in three years and 4.6% in multi-level marketing and receptive to joint ventures, acquisitionsfive years. The highest growth category discount chains. or distribution agreements within the top 50 was apparel, with PVH companies either domiciled or(Calvin Klein, Tommy Hilfiger) growing established in those target markets.88% in five years through acquisitions. As has been the case over the last fewMost of the other top 50 companies New strategies and years, this continual need for changingexperienced low or no organic growth new markets strategies will drive M&A activity in theand the few that did have some growth US and internationally.were primarily driven by acquisitions Over the next few years the US(e.g. Jarden). consumer goods market is expected to remain at the low-single digit growth rate, but will have more dramaticChanging shape of the changes within the different consumer sectors and distribution channels.consumer industry We expect to see growth at both endsThe retail distribution channels have of the branded goods spectrum and aevolved quite significantly over the past decline in the middle. Meaning thatfive years. The “bricks & mortar” stores high-end brands like Nike and Coachthat are doing well are the luxury and value brands like Costco’s Kirklandretailers and the discount retailers. and Target’s Cherokee will continue toNon-traditional channels such as onlineRecent transactions M&A activity Date Target Description Acquirer Deal Value 300 300 (US$m) 250 250 Average deal value $mDec 11 Kukdong Apparel Apparel Kukdong Corp. 11 Transaction volume (America) Inc. 200 200Dec 11 Baby Trend, Inc. Juvenile products GIA Investments 45 Corp.Sep 11 JAKKS Pacific Toys Oaktree Capital 608 150 150Jun 11 Timberland Co. Apparel & V.F. Corp. 2,200 100 100 footwearMay 11 Acushnet Recreational FILA (Korea) 1,200 50 50 Company (Titleist) equipmentMay 11 Volcom Apparel PPR SA (France) 607 0 0 2008 2009 2010 2011Jan 11 Rafaella Apparel Apparel Perry Ellis 195 Total deal volumeJan 11 Klipsch Group Consumer Audiovox 232 Source: Capital IQ and electronics Mergers Alliance Analysis Average deal value $mDec 10 Sara Lee Shoe Household SC Johnson 323 Care (Kiwi brand) productsSep 10 Alberto-Culver Personal care The Carlyle Group 3,900 productsDeal Focus - USA 13
  • 15. China Steady shift to a more Indeed, the past three years has seen M&A targeted at home appliance consumer driven economy electronics firms gather pace; further The Chinese consumer class, riding on deals included the purchase of the wave of constant macroeconomic Shenzhen based United Opto- growth, has been expanding at a Electronics, a firm engaged in the rapid rate. design and manufacturing of projection televisions and related products, by Just seven years ago 4.2 million keypad specialists Karce International households were earning US$10,000 Holdings for US$346m and the majority “China is the a year, that household figure has since stake purchase of Hefei Royalstar most significant risen to just over 20 million and rising. Industrial, by its domestic peer Wuxi Despite this, consumption still only Little Swan for US$78m. prize in the makes up 35% of GDP compared to 70% in the US. It is clear that the consumer consumption capacity of the Chinese Homegrown brands takegoods sector. The has not come close to realising its to the world stage full potential. Indeed, analysts expectmiddle-class in China China’s consumer market to grow to China is home to a number of three times the size of the US marketis increasingly becoming over the next two decades. multibillion dollar brands, some of which have had more exposure toa wealthy one with a China’s 12th five year plan, which runs Western markets than others.growing appetite for until 2015, places an emphasis on The brands range from electronics balancing the economy to be more to sporting goods and top among themconsumer goods. higher-value-add consumer driven is multinational computer firm Levono. and less reliant on cheap exports. The company manufactures andCompanies, both Even with this, China will remain a markets desktop, tablet and notebookdomestic and foreign, relatively frugal state relative to its computers. Currently the worlds western counterparts and saving will number two PC brand, the companywill vie for market remain firmly entrenched in the culture; has already been active in global M&A with its acquisition of IBM’s personalshare through M&A.” an economic dynamic that can only computer division in 2005 being its prove supportive to the long term health of the economy. most high-profile deal. Looking aheadAndre Johnston, it recently stated that it is looking forMergers Alliance overseas acquisitions to expand its nascent mobile device division. Large interest in home appliances The next two biggest non food and drink consumer companies are Anta China has been a fairly active hub of and Li-Ning, both sporting goods consumer goods M&A in recent years firms that design sports apparel and and although there was a contraction equipment under their own brand in 2010, 2011 surpassed the peaks names. Li-Ning surpassed Adidas in both volume and average deal domestically in 2009 to become the value. Interestingly, over half of all second largest sports brand by market transactions over the past three years share (after Nike). In the same year it have been cross-border. bought Hong Kong based sportswear Recent among them was renowned firm Kason Sports for US$24m. Anta Swedish outdoor recreational brand meanwhile has ambitiously declared its Hestra-Handsken’s acquisition of a intention to open 10,000 new stores 50% stake in outdoor sportswear and across China. equipment firm Zhejiang Pinghu Huashen in February 2011 for an undisclosed sum. In the same month French electrical appliances company SEB Internationale acquired a 20% stake in kitchenware appliances brand Zhejiang Supor for US$526m. Deal Focus - China14
  • 16. Personal care opens Interestingly, there has been notable Monetary policy could outbound involvement as well; Chinaits borders Investment Corporation invested influence M&ADue to its substantial growth prospects US$50m into French beauty and home If the Chinese government stopsone industry that has been more active products firm LOccitane International artificially suppressing its currency andthan most in M&A has been the CF&T during its floatation. allows the RNB to float freely (which(cosmetics, fragrances and toiletries) may happen sooner than anticipatedsegment. due to domestic inflation concerns) theIn December 2010 Coty Inc, the world’s Luxury sensibilities consumer’s purchasing power will rise sharply. Not only will this enable thelargest fragrance company By 2015 China is set to overtake the Chinese to outbid foreign consumersheadquartered in Paris and New York US and Japan to become the world’s on products they themselves make,and privately owned by German holding largest luxury market. Heavy tariffs it will also provide Chinese firms withcompany Joh. A. Benckiser, acquired a levied on certain consumer goods such the additional purchasing power tomajority stake in TJoy Holdings, a as a 50% duty on cosmetics and a participate in outbound M&A moreJiangsu Province based brand that 30% duty on high-end watches are to aggressively.manufactures skin care products, for be repealed with further reductions onUS$400m. Although Tjoy has negligible import tariffs to follow. Such a movemarket share (estimated at 1%) Coty may actually discourage China targetedwas attracted to one of the Chinese M&A by foreign luxury companies asfirms lucrative skin whitening and male home advantage no longer becomes askincare products lines. These products prerequisite to penetrating the market.have been experiencing high doubledigit growth in recent years. Currently, only a small fraction of the population can afford premium goods,In 2008 Johnson & Johnson China most of whom are confined to theInvestment Co, a subsidiary of New major cities, however, prosperityJersey based Johnson & Johnson, and goods are now swelling intobought Beijing Dabao Cosmetics, one the second and third tier cities.of China’s best known cosmetic brands(the firm had previously been majoritystate owned). The purchase has so farfacilitated Johnson & Johnson’s entryinto the Chinese market throughDabao’s 3,000 mainland outlets.Recent transactions M&A activity 60 60 Date Target Description Acquirer Deal Value (US$m) 50 Average deal value $mDec 11 Shanghai Watches Watches Shenzhen Fiyta 7 50 Transaction volume Company Limited Holdings Ltd 40 40Dec 11 Shenzhen Consumer Sichuan Changhong 32 Changhong electronics Electronics GroupNov 11 Yiwu Nengdali Apparel China Fashion n/d 30 30 Garments Co.,Ltd. Holdings Ltd.Aug 11 Parel Cosmetics Ming Fai Holdings 5 20 20 Cosmetics Ltd. LimitedAug 11 BSW Household Electornics Bosch and Siemens 19 10 10 Appliances Home Appliances (Ger)Aug 11 FAB Enterprise Electronics Wizzard Software 15 0 0 2008 2009 2010 2011Mar 11 Zhejiang Putian Household Elica SpA (Italy) 42 Electric appliances Total deal volumeFeb 11 Zhejiang Supor Housewares and SEB SA (France) 526 Source: Capital IQ and specialties Mergers Alliance Analysis Average deal value $mFeb 11 Zhejiang Pinghu Sportswear and Hestra-Handsken n/d Huashen equipment AB (Sweden)Apr 08 United Opto- Electronics Karce International 346 Electronics HoldingsDeal Focus - China 15
  • 17. India Growing middle class Foreign private equity boosts M&A interest in Indian apparel India is one the world’s most lucrative Disposable income in India is growing consumer markets and there is still at 5% annually; yearly growth of the ample room for expansion in a country apparel sector however is c. 13%. This where, similar to China, consumption figure can be partly attributed to more makes up less than half of the total money being in the hands of young GDP. people and an increase in demand for “Consumer A number of multinational consumer office wear by both men and women. companies giants have had a presence in India for The past three years have seen the decades: Unilever initially entered the growth in apparel reflected in the M&A have often Indian market in 1930 and Procter & market where many of the consumer Gamble commenced its first operations transactions took place. struggled to in the 1950’s. A number of financial funds competedpenetrate the disparate M&A participation in the sector to invest in Genesis Colors, a companyand often volatile although always evident, has increased that owns a variety of premium fashion over the past five years thanks to labels. Investors included L Capital,Indian market as favourable consumer drivers including the private equity arm of luxury high GDP growth, a growing middle conglomerate LVMH, who recentlymodern retail chains class (which is expected to swell to acquired a 40% stake. Previously, UKare relatively weak and around 500 million by 2025) and a based Henderson Global Investors rise in per capita income for rural acquired a 12% stake for US$17m andthe majority of inhabitants. US based venture capital firms Sequoiaconsumer goods are Capital and Mayfield Fund contributed US$26m. The new funds have beensold in traditional High valuations in used to open new branches, market one of its flagship brands, Satya Paul,shops. Entering these personal care and fund future acquisitions.markets requires India’s personal care market is growing In 2010 private equity firms Bain rapidly thanks to the rise in thepowerful independent population’s purchasing power and Capital and TPG Capital purchased undisclosed stakes in Indian kids-weardistribution networks, increasing health awareness. The sector firm Lilliput for US$86m. The new has attracted many overseas cash rich funds will allow one of India’s mosttherefore, most would buyers. Unfortunately, the number recognisable kids-wear brands to of brands for sale has not satisfiedbe better off acquiring demand which has contributed to extend its product range as well as its store footprint. The deal is also seen asor partnering with local the high multiples being paid. a precursor to its initial share offering that is said to be taking place over theestablished brands.” This was illustrated by the bidding next 12 months. war, involving both multinational andSujay Kotak, domestic players, for ParasSinghi Advisors Pharmaceuticals, a household and personal care company. The auction Seeking global coverage was eventually won by UK based Reckitt Benckiser who bid a sizable A growing number of Indian firms are US$725m (price/sales multiple of over seeking international exposure to both 8 x). Reckitt is the worlds largest hedge against domestic competition producer of personal and household and to capitalise on some of the products boasting global brands such lucrative diaspora market. Historically, as Durex and Vanish. As well as Indian firms have sold identical product extending these brands already lines in the targeted overseas markets discernable presence in India, the to the ones sold locally, however, firms acquisition will allow Reckitt to expand are now customising their brand its product line through Paras’ own portfolio to better suit the tastes of extensive portfolio which includes international consumers. M&A has brands such as D’Cold, Moor and helped facilitate the cross-over and one Dermicool. such example was the acquisition of UK based CF&T company Keyline Deal Focus - India16
  • 18. Brands by Godrej Consumer Products, Industry insight India and through our global operations.the consumer division of the Indian On top of that, we expect a 10%conglomerate. The buy enabled Godrej Name: Vivek Gambhir compounded annual growth rate fromto introduce new product ranges to the Company: Godrej Group acquisitions. This would be financed byUK and Europe as well bring Keyline’s Position: Chief Strategy Officer the surpluses generated each year andbrands to the Indian market. Indeed, by maintaining a debt equity ratio ofGodrej has been one of the world’s about 1:1.most acquisitive consumer companiesover the past three years. A trend that 10 times in 10 years is a compoundedwe expect to continue as firms in annual growth rate of about 27%,emerging markets go out of their which we fully expect to achieve.way to achieve global coverage. Ultimately our growth aspirations are indicative of the Indian consumer market as a whole.”Outlook The Godrej Group is an Indian conglomerate headquartered inThe majority of the rural population will Mumbai, India and has a turnoveremerge from subsistence consumption of US$2.6bn. Godrej Consumer “At Godrej Consumer Products weto a level that consistently consumes Products is a leader among Indias have a financial goal of what we calltailored, though still affordable, FMCG companies, with leading 10x10, which essentially means 10products. The market potential in terms household and personal care times the size in 10 years. We expectof volume for mass premium products products. to grow organically by around 15-and FMCG’s is considerable. We 20% over the next 10 years both inbelieve this holds true for productsin beauty and skin care products inparticular and this is where we expectfurther M&A activity to take place overthe next three years.Despite its eclectic language structureand vast landmass, the current Indianconsumer climate is relativelyhomogenous. Nonetheless, a rise inpurchasing power and an increase inscale will necessitate more complexbusiness models with regards tobranding and general operations.An effort than can be facilitated byforeign expertise.Recent transactions M&A activity Date Target Description Acquirer Deal Value 35 100 (US$m) 90 30 Average deal value $mSep 11 Genesis Colors Apparel L Capital, Henderson 43 80 Transaction volume Mayfield (Various) 25 70Jun 11 Darling Group Hair care Godrej Consumer 100 20 60 Holdings Products Ltd. 50Apr 11 Henkel India Ltd. Fabric care Jyothy 170 Laboratories Ltd. 15 40Apr 11 Weekender Apparels for Madhusudan 21 10 30 Clothing children Securities (Vietnam) 20Jan 11 Maya Appliances Household Koninklijke Philips n/d 5 Industry appliances Electronics (Egypt) 10Dec 10 Naturesse Hair care Godrej Consumer n/d 0 0 Consumer Care Products 2008 2009 2010 2011Dec 10 Paras Healthcare Reckitt Benckiser 725 Pharmaceuticals (UK) Total deal volumeDec 10 Essence Consumer Fabric care Godrej Consumer n/d Source: Capital IQ and Care Products Products Mergers Alliance Analysis Average deal value $mDec 10 Bachi Shoes Footwear Tata International 26 India PrivateSep 10 Lilliput Kids apparel Bain Capital, 86 TPG Capital (USA)Deal Focus - India 17
  • 19. pJapan 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 The much predicted reorganisation of markets in Japan have led to growth and consolidation among domestic Japan’s consumer electronics industry consumer goods companies. Deflation was realised in 2008 with the start ofshrinking consumer in Japan has created price competition the acquisition of Sanyo Electric bygoods market in Japan putting pressure on margins, further Panasonic Corporation. forcing players to consolidate to find The initial 50.2% stake in the listedis underpinning M&A cost synergies. The strong yen has also Sanyo Electric amounted to overactivity in this sector. levelled the domestic playing field US$12bn. With major electric attracting foreign global players to the companies like Hitachi, Toshiba andWe expect to see more market. Global consumer brands such Mitsubishi surging domestically, Sanyo as H&M and Zara in apparel and Ikeaconsolidation of in furniture have been successful could not compete by itself in many of its product areas. In 2011, Haier Groupmarginal local in Japan. Company of China, acquired nine subsidiaries of Sanyo which mainlyconsumer products At the same time these factors have produced washing machines and also been drivers for outbound M&Acompanies along with as Japanese consumer companies refrigerators in Japan and Asia. seek faster growing markets abroad.MBOs and private M&A was not limited to domestic players seeking consolidation. In 2008,equity investment, while Bain Capital saw a brand enhancing Great East Japan opportunity in the Japanese audiothe stronger companies earthquake impacts M&A electronics market by acquiring thelook abroad to the Tokyo Stock Exchange listed D&M Prior to the impact of the Lehman Holdings for US$686m. Bain purchasedhigher growth markets shock, Japan saw a number of major the stakes of RHJ International and mid and large-sized consumer deals. Phillips and D&M was delisted fromin the BRICs, South Panasonic acquired Sanyo electric in a the stock exchange. D&M holds audioEast 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 purchaseIBS 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 - Japan18
  • 20. In sportswear, athletic shoe than increasing their presence by sought alliances: Pioneer, a formermanufacturer Asics Corporation establishing their own natural cosmetics television manufacturer, has madeacquired the Swedish outdoor clothing brands, they have purchased already capital tie-ups with Mitsubishi andand equipment manufacturer Haglofs proven brands and helped them grow. Sharp and now concentrates on audioHolding AB for US$133m in 2010. Asics and car navigation systems. JVC andplans to expand the Haglofs brand in Kenwood combined in 2008 to formJapan and Asia. Recent reports indicate Electronics majors merge JVC Kenwood Holdings. The threethat Goldwin, another sports clothing television majors will need to raise theirmanufacturer, is also looking to acquire to ward off competition presence in growing overseas marketsin an attempt to balance their winter from South Korea in Asia, South America and Africa insporting goods product sales with a order to maintain share and we do not Although, as mentioned, Japanesespring/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 incompany Bare Escentuals Inc. for overseas markets. Sony, PanasonicUS$1.5bn. The deal solidified Shiseido’s and Sharp; the major Japanese brands, Predictionsentry into the global natural cosmetics have fallen behind Korean giants For consumer goods companiessegment and also follows the pattern Samsung and LG in global market in Japan, the strong yen, waningcreated by other dominant global share, particularly in flat panel television demographic trends and a deflationaryplayers such as Estee Lauder who displays. In an effort to maintain market environment in the domestic marketacquired natural brand Aveda. Rather competiveness the smaller firms have will continue to encourage the major brand companies to seek new opportunities abroad for at least the next three to five years. Luxury and premium products will be in a steady state of decline, as maturing Japanese consumers seek value. Marginal players in each segment will likely become opportunities for MBOs, private equity, and foreign-capital multinationals.Recent transactions M&A activity Date Target Description Acquirer Deal Value 50 600 (US$m) 45 500 Average deal value $mDec 11 Asty, Inc. Cosmetics Kenkou Corporation n/d 40 Transaction volume 35 400Dec 11 Wave International Apparel brand Tokyo Style 13 30 Co. Ltd.July 11 SANYO Electric Kitchen goods Haier Group n/d 25 300 Co, 9 Subsidiaries 20July 11 Pentax Ricoh Digital cameras Ricoh n/d 200 15 Imaging 10May 11 Kawashima Curtains, JS Group 180 100 Selkon Textile home interior 5Jan 11 Prime Japan Inc. Wedding jewellery Baring P.E. Asia n/d 0 0 (Hong Kong) 2008 2009 2010 2011Oct 10 Kasco Corp. Golf products Mamiya-OP Co. Ltd. 26 Total deal volumeOct 10 Sanei International Apparel TSI Holdings 315 Source: Capital IQ and Mergers Alliance Analysis Average deal value $mJun 09 Kracie Holdings Toiletries & Hoyu Co. Ltd. 261 cosmeticsDec 08 SANYO Electric Electronics Panasonic Corp. 1,230Deal Focus - Japan 19
  • 21. Turkey y 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 increasingly organised retail segment “The Turkish (318 shopping malls by the end of footwear company Yesil Kundura, 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 demographics, that are increasingly is quickly trending towards more western sportswear and fashion wears. It operates 54 retail stores andbecoming highly lifestyles, are all benefiting two online stores. the consumer sector.attractive to investors. Private equity activity in this space has also been apparent: In October 2010This has been newly-formed private equity fund European multinationalsespecially evident in target personal care market Eurasia Capital Partner (a fund focused on equity and equity-relatedthe 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 care companies. Most of Canan’s more than 300 shops in 46 countries.in the past, there are US$26m turnover comes from its Ipek The investors hope to help realisenumerous 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 2012in the market and in and establishing itself as one of the “The Turkish cosmetics market is world’s top ten children’s clothingthe pipeline.” expanding strongly and has a very large brands. growth potential. The acquisition ofOzkan Yavasal, Canan will bolster our positions inDaruma Corporate Finance hair-care products, the largest segment in the market.” Consumer spending 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 - Turkey20
  • 22. In parallel with this rise in consumerspending (which has already surpassedpre-crisis levels) we expect to see anincrease 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 Average deal value $mDec 11 Sanpan Isitma Decorative Zehnder Group n/d 50 Transaction volume Sistemleri San products AG (Swi) 6Aug 11 San Saglik Personal products Svenska Cellulosa 15 40 5 Urunleri San.Tic. Aktiebolaget (Swe)Jun 11 Komili Kagit ve Baby diapers, Svenska Cellulosa 49 4 30 Kisisel Bakim feminine care Aktiebolaget (Swe) 3Dec 10 Ceylan Giyim Ready-wear Kamil Engin Yeşil 101 20 apparel (Private individual) 2Nov 10 pek Giyim Apparel CarrefourSA 30 10 1 MağazalarıOct 10 Wenice Kids Childrens apparel Eurasia Capital n/d 0 0 Partners 2008 2009 2010 2011Jul 10 Hobi Cosmetics Cosmetics Dabur Group 68 (India) Total deal volume Source: Capital IQ and Mergers Alliance Analysis Average deal value $mDeal Focus - Turkey 21
  • 23. France Luxury goods leading the emerging middle classes and the increasing number of high wealth the M&A market 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 “The French featuring luxury brand companies are formats, including outlet stores and over-represented, and strongly fuel the consumer online. 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 activedriven by the luxury French global market leaders are now competing with new strategic buyers M&A in the consumer goodssector where multiples from emerging countries like China. As sector has been very active over the a consequence, premium assets are in past two years, fuelled by the cashare ever-increasing as high demand and transaction multiples stockpiles held by the global leadinga consequence of are surging. players and private equity firms that have sought to make deals andsector characteristics Recent activity included the acquisition spend their cash after two years of of Bulgari by LVMH, the IPO of(high growth, profitable L’Occitane on the Chinese Stock macroeconomic uncertainty and limited access to financial leverage.and non cyclical) and Exchange and the battle between LVMH and the Hermès Family for Recent deals of particular interestthe increasing appetite the control of Hermès. LVMH, the included the sale of Spotless, the worlds largest luxury goods company, French maker of laundry and cleaningof Asian strategic unveiled a US$5.2bn all-share deal to products, to BC Partners, a UK-basedbuyers 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. Axahigher 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 overwith established Bulgari family. five years, has more than doubled itsworld leaders.” The French firm also bought the rest of initial equity investment in the company. BC Partners saw off competition for Bulgari’s shares at 12.25 Euros a shareMichel Degryck, Spotless from rival buy-out groups - a premium of about 60%. As part ofCapital Partner Bridgepoint and Lion Capital. 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 industrial players. 2011 was especially brands and routes to clients 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 mens 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 - France22
  • 24. 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-brandranges by mass-retailMany of the mass market brandsare now competing against theirdistribution networks, which areincreasing their margins throughdeveloping their own product rangesand private labels. Decathlon (40%market share of the French sportinggoods retail market) epitomises thisnew trend. It is increasingly selling itsown-branded products and carryingout self-innovation rather than simplyretailing third-party branded products.Recent PE transactions M&A activity Date Target Description Acquirer Deal Value 100 (US$m) 90Jan 12 Briconord Sarl Home improvement Evolem n/d 80 Transaction volume productsAug 11 Captain Tortue Door to door L Capital 83 70 sales apparel 60Jul 11 Paul ka High end apparel Change Capital 69 (UK) 50Jul 11 Sun City Childrens apparel Edrip + Management 69 40 30Jun 11 Le Tanneur Leather goods Qatar Luxury Group 40 et Cie (Qatar) 20Jun 11 Eminence Underwear brand LBO France 206 10 0Jun 11 The Kooples Fashion apparel LBO France n/d 2008 2009 2010 2011Feb 11 Sergent Major Childrens apparel Edrip + Siparex n/d Source: Capital IQ and Mergers Alliance Analysis Total deal volumeSep 10 Sandro Maje Fashion apparel L Capital and Florac n/d Claudie PierlotFeb 09 Spotless Laundry/ cleaning BC Partners 826 branded products (UK)Deal Focus - France 23
  • 25. Germany y 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 uncertain. Germany’s performance in mid-size this context has been above-average: In the mid-market, UK based 3i Group recently acquired Amor GmbH in acompanies to trigger Price adjusted GDP growth for 2011 secondary buyout. The supplier of was 2.7% with real wages growing by jewellery, marketed internationally underfurther consolidation 1.9%. Consumer spending increased the Amor brand, was acquired from by 1.6% while inflation remainsand be the main relatively low at 2.3%. Moreover, the Pamplona Capital for an estimated US$140m. This implied a multiple ofparticipant in consumer unemployment rate experienced a slight approximately 6.3 x EBITDA 2010. decrease of 0.6% to level at 6.6%. 3i Group intends to extend Amor’sgoods M&A. Despite distribution channels internationally Generally, rather robust consumerthe 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 ownedactivity in the sector Mustang, the fashion brand for anshould remain stable.” undisclosed amount. Private equity investorsStefan Constantin, activeC.H. Reynolds Corporate Made in Germany As mentioned, through 2008 to 2011Finance 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 - Germany24
  • 26. performance sports brand Five Ten. This was illustrated in 2009 whenPuma SE meanwhile acquired the strategic investors acquired assets ofCobra Golf brand from Acushnet insolvent consumer companies as wellCompany; in addition they purchased as underperforming assets atDobotex International, the Dutch favourable valuations (this wasexclusive licensing partner of a variety particularly evident in the apparelof fashion, sports and sports-lifestyle industry e.g. Baeumler AG andbrands. Rosner GmbH & Co).During the same period, Beiersdorf AGlaid out its strategic intention to focuson its core brands – primarily Nivea, Factors determiningEucerin and La Prairie – while future M&Astreamlining and partially divesting Cross-border M&A activity involvingits non-core brands. German consumer goods companiesIn the textile segment HUGO Boss buying foreign targets has been largelyacquired 15 mono-brand stores and triggered by companies striving torelated assets of the Moss Bros Group internationalise their distribution(the listed UK fashion retailer) in Q1 networks but also by their need to2011 to further expand their store upscale and to secure additionalnetwork. growth platforms (e.g. premium brands targeting emerging markets). Domestic growth opportunities in theOpportunities abound German consumer goods market stemdespite power brands primarily from the ongoing life-styledominance changes and rising environmental consciousness of the consumer. ToThe total sales volume of German capitalise on these trends, companiesconsumer goods is estimated at need stringent brand positioning andUS$50bn, with the top five brands distinctive brand value propositions,accounting for US$27.7bn. as well as efficient distribution and communication channels - often aThe industry’s sub-sectors generally prerogative of the larger market players.have their distinctive market leaders We expect these factors to support(the aforementioned power brands), consolidation trends going forward.while the rest of the market ispopulated by a broad array of mid tosmall-cap players (many family-owned)leaving room for consolidationopportunities.Recent transactions M&A activity Date Target Description Acquirer Deal Value 80 140 (US$m) 70 120 Average deal value $mDec 11 Run & Style GmbH Sports apparel Maier Sports GmbH n/d Transaction volume & Co. KG & Co. KG 60 100Oct 11 Mustang - Fashion apparel ACapital n/d 50 Bekleidungswerke 80Jul 11 Jack Wolfskin Outdoor apparel Blackstone 982 40 Ausruestung fuer and footwear Group L.P. (UK) 60 30Jun 11 Medion AG Electronics Lenovo Group 261 40 and IT Limited (HGK) 20Apr 11 SLV Elektronik Lighting systems Cinven Ltd. 772 10 20 GmbH (UK)Apr 11 d&b Electronics Odewald & n/d 0 0 audiotechnik GmbH Compagnie 2008 2009 2010 2011Feb 11 Siteco Lighting solutions Osram GmbH n/d Total deal volumeFeb 11 Weco Furniture under Mebelplast S.A. n/d Source: Capital IQ and Polstermoebel WECO brand (Poland) Mergers Alliance Analysis Average deal value $mJan 11 PAIDI Moebel Furniture for DZ Equity n/d GmbH children Partner GmbHDec 10 Amor GmbH Jewellery 3i Group PLC (UK) 140 manufacturing/ retailDeal Focus - Germany 25
  • 27. Italy y 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 There are now real fears that developing world. “Household 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. acquisition of Italian luxury consumer capability, group Bulgari by its French counterpart To compound these sentiments the 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 worldwide growth aspirations and allowglobal recession, has likely remain static over the next six it to double its jewellery and watches months with growth (if any) beingbeen 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 a 60% premium to Bulgaris averageconsumer goods, share price, was partly due to multipledrawing consumers Firesale prices for brands bidders and partly due to the current Although there has been a y-o-y dip in favourable conditions of the luxurytowards low cost deal volume due to deteriorating macro market.products. Mid-range conditions (although 2011 saw a slight Another recent premium transaction recovery), consumer goods led M&A was the acquisition of the Moglianobrands are suffering has remained relatively active owing to Veneto based apparel firm Belstaffand 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 oflooking 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 growingNuccia 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 - Italy26
  • 28. Outbound deals prevail Underlying currents of the Cross-border willOutbound deals have been more consumer brand market remain kingprevalent compared to domestic The Italian consumer products industry Given the propensity for large Italianconsolidation over the past three is relatively fragmented with thousands companies to look for growthyears with heavy involvement by of companies with turnovers ranging opportunities abroad (rather thansome of the world’s most important from US$1-100m. The industry as a acting as consolidators domestically),consumer companies. whole still has a family owned flavour we expect the current trend of foreignLuxottica, the world’s largest eyewear to it. Curiously, there are a distinct lack big cap companies raiding the countrycompany (Ray-Ban, Oakley) was busy of domestically based mass market for strong historical premium brands tofinalising acquisitions in Mexico, New brands as most have been bought out continue. The acquisition mood will beZealand, Israel and Turkey; while Giochi by foreign players. driven by undisputed brand equityPreziosi, the world’s fifth largest on one side and by opportunism Moving to mass-premium, most small on the other.toymaker, acquired a 25% stake in to mid-sized Italian companies areFrance based toy distributor King struggling to position themselves in an In terms of valuations, we expectJouet. Elsewhere, furniture firm increasingly value conscious consumer multiples to remain in the high rangeElica SpA acquired three companies market. There has been an ongoing and for bargains to be few and farin China and India. disconnect between what a company between. sells a product for and its actual market value. Price points have both been lower to increase volume or higher to make up for lost volume. Even with these adjustments, margins have remained low.Recent transactions M&A activity Date Target Description Acquirer Deal Value 90 350 (US$m) 80 300 Average deal value $mDec 11 Coccinelle S.p.A. Fashion E.Land World 20 Transaction volume 70 accessories Company Ltd. (Kor) 250Sep 11 Omas Srl Writing instruments Ming Fung Jewelry 51 60 (HK) 50 200Aug 11 DIT Group Jewellery Gitanjali Gems 11 40 (India/ Corporate) 150Aug 11 Bulgari Jewellery LVMH 2,470 30 100 (France) 20Aug 11 Moncler Sportswear Eurazeo 572 50 10 (France)Jul 11 Braccialini Leather NEM 36 0 0 accessories 2008 2009 2010 2011Jul 11 Toy Watch Jewellery J.Hirsch & Co n/d Total deal volumeJul 11 Mandarina Duck Leather E-Land Co 66 Source: Capital IQ and accessories (S. Korea) Mergers Alliance Analysis Average deal value $mFeb 11 Gianfranco Fashion Paris Group (UAE) n/d FerrèDec 10 Cantieri Navali Luxury yachts Nauticstar Marine 18 Lavagna (China)Jul 10 Barovier & Toso Glass accessories AVM Private Equity 17Deal Focus - Italy 27
  • 29. 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 sunk compared to previous years, company have shown increased consumer 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 inM&A proposition with beauty and personal care, highlights Strong private equity this new strategy. Another large-scalelots of consolidation interest deal took place in 2010 when Unilever acquired the home and personal careand economies of scale Interestingly, more than one third activities of the US based Sara Lee foractivity taking place. of all deals were cross-border, which US$1.85bn. These acquisitions enforce Unilever’s market position and brand underlines the international orientationMulti-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 private equity investment. Several well If past activity is any indication,importance as known private equity firms including expect electronics multinational Philipsproducers reach their GIMV and NIBC invested in this (turnover US$36bn) to continue its sub-sector. acquisitive tendencies. Recent buyscustomers more and include the purchase of Saeco, an In 2011 clothing conglomerate Liz Italian producer of high quality coffeemore via e-commerce Claiborne sold its loss making Mexx machines, and the purchase of Chinain an attempt to brand to a joint venture that included based kitchen appliances firm Povos. US headquartered private equity firm In addition, Philips recently acquiredincrease margins. the Gores Group in exchange for a the Spanish luminaires company minority of the equity. According to Liz Indal to boost Philips’ EuropeanWatch for strategic Claibornes CEO, the reasons for the market position.activity in this space.” sale of the troubled brand were risk The electronics giant recently laid out mitigation and debt reduction and to focus the company’s attention on its intention to increase its M&A activityBart Jonkman, in the coming years to support itsBlueMind 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 Netherlands28
  • 30. Multi-channel gaining Germany; with France, Austria and Poland all set to follow. It is expectedsignificance 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 shoesmulti-channel sales. Indeed, reports are the largest non-food producthave shown that 69% of Dutch segments online. Online sales nowconsumers buy products via two represent 6% of total sales acrossor more channels. these sub-sectors. We expect theOnline sales in particular have risen trends in multi-channel sales, insignificantly in recent years and are combination with the attractiveness ofexpected to keep growing as large branded goods, to create interestingretailers and brand stores aim to opportunities for financial and tradeintensify growth via a multi-channel buyers alike.approach. Private label retailer C&Arecently announced the launch of itsonline store in the Netherlands andIndustry 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&AName: Arjo Stammes, politicians to mitigate the challenges activity in the consumer goodsCompany: 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 thisPosition: 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&ARecent transactions M&A activity Date Target Description Acquirer Deal Value 25 500 (US$m) 450 Average deal value $mDec 11 Van Nicholas B.V. Titanium bicycles KOGA B.V. n/d 20 400 Transaction volume 350Sep 11 Mexx Clothing designer, Gores Group LLC, 85 15 300 clothing retailer (USA)Aug 11 Sapph Underwear Mr Roland Kahn n/d 250 10 200Jul 11 Delvaux Leather handbag Fung Brands Ltd n/d 150 Createur and accessories (HK) 5 100Jul 11 Scotch & Soda Apparel Kellwood Company n/d (Sun Capital) (USA) 50Jun 11 Koninklijke Bicycle Pon Holdings BV n/d 0 0 Gazelle manufacturer 2008 2009 2010 2011May 11 Ego-Lifestyle Computer Value8 NV n/d accessories Total deal volumeMay 11 Hedgren Travelbags Unnamed Bidder n/d Source: Capital IQ and Creations Mergers Alliance Analysis Average deal value $mMay 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
  • 31. Poland A growth economy in an The most noticeable trend has been the consolidation process in the unsettled continent 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 “Growth in progressing by leaps and bounds, with Foreign brands dominate Polish retail spending increasing over 40% but local leaders evident between 2005 and 2010, from Over the past decade, starting from consumer US$100bn to US$142bn, and an a very low benchmark, branding has estimated volume terms increase of goods is 28% from 2005 to 2009. The spending become increasingly implanted in consumer behaviour. Foreign owneddynamic, and while increase has been underpinned by companies have built up a strong Poland’s strong economic performanceM&A activity here position in recent times, attracted over the period, and its healthy by the size of the local market; either resilience during periods of globaloutside retail has been economic slowdown. growing their global brands from scratch since the 1990’s or, morelow key, opportunities Consumer spending has been recently, from strengthening locallyare 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,Michael Harvey, high street, there are a number of highly falling unemployment, rising disposableIPOPEMA Securities successful ‘national champions’ that 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 - Poland30
  • 32. Online shopping picks Decelerating economyup but still immature should spur M&AConsumer spending remains Slightly slower growth in Poland, apredominantly a bricks and mortar weakening zloty and stagnant growthaffair, even so, companies like Empik across the EU will make the businesshave been looking to acquire leading environment somewhat difficult over theplayers in the online space (although its next 18 months. Growth will be furtherattempt to acquire control of leading constrained from rising rents, slowingonline bookstore Merlin was recently new space availability, and anblocked by the Competition Authority) increasingly cautious consumer.to secure and defend their position.While online spending is growing Private equity interest in consumerexponentially from a low base, it still firms has always been strong, butremains a niche activity, constrained broadly constrained by limited dealby internet access, the relatively low opportunities and aggressiveincome levels of the computer savvy, pricing. We expect this tighteningpayment and security constraints and environment to accelerate thepoor logistics. process of consolidation.Recent transactions M&A activity 14 25 Date Target Description Acquirer Deal Value (US$m) 12 Average deal value $mJun 11 LPP S.A. Fashion apparel Grangeford n/d 20 Transaction volume Limited (UK) 10Jun 11 DURLIN East Household and Durlin France S.A. n/d 15 Europe Sp. z.o.o. personal products (France) 8Mar 11 Kazar Footwear Footwear Gino Rossi S.A. n/d 6 10 Sp z.o.o.Nov 10 Rosetex Personal products SSL International 5 4 plc (UK) 5Oct 10 Dermika Sp. z.o.o. Cosmetics Cederroth 15 2 IndustryOct 10 ROY S.A. Mens apparel Skyline Interim n/d 0 0 Management Sp. 2008 2009 2010 2011Jun 10 Grupa Kolastyna Household & Sarantis Polska S.A. 3 S.A. personal products Total deal volumeMay 10 Effect Leisure equipment Lubawa S.A. n/d Source: Capital IQ and System S.A. Average deal value $m Mergers Alliance AnalysisSep 08 Artman S.A. Apparel LPP S.A. 184Mar 08 Cederroth House-ware INVESTcon 27 Ozdobnego GROUP S.A.Deal Focus - Poland 31
  • 33. 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 remain steady for 2012 at aroundto have the same great 4%, driven by domestic demand.impact it had on Progressively rising oil prices may push this figure higher.China’s economy since2001. It will help open Unilever takes over Russianup more trade and cosmetics marketaccess to the Russian Deal activity over the past 18 monthsconsumer market and in terms of volume and value has Private equity likes shoes remained lively thanks to some notable Another significant recent transactionultimately more deals in the CF&T space. Most of the was the acquisition of a 36% stake ininvestment corporate activity in consumer goods the Monarch Group, a leading footwear has been focused on consolidating producer and retailer in Russia andopportunities 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 beenincluding in M&A.” some notable foreign interest, Since 2001, Monarch has been the particularly from financial buyers leading footwear retailer in the middleDavid Wolfe, in Western and Northern Europe. and lower-middle price segments. This area of the footwear market has provenNorthstar 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 Russias 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 Unilevers 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 - Russia32
  • 34. Balance account surplus Largest Europeanboosts consumerism consumer market inOne of our Japanese clients, 10 years?when touring Russian acquisition We expect there will be someopportunities in the consumer goods opportunities in the consumer goodssector commented that ‘Russia is not a sector in the near future, especiallydeveloping economy, it is a re-emerging since the Russian economy continueseconomy’. However, its re-emergence to grow faster than that of theinto the global economy has taken developed world. Russia’s membershipsome short cuts. First, Russia has into the WTO, which will be ratifiedtaken advantage of its enormous wealth sometime in 2012, will also spur growthof natural resources to quickly get hard in the consumer goods sector as wellcurrency via exports, especially oil and as present a number of M&Agas. Consequently, its current account opportunities.balance was US$86bn in 2011, the fifthlargest in the world. It has used the According to Goldman Sachs, Russia’sproceeds from its trade surplus to GDP could overtake that of Italy’s assupport the import of consumer goods soon as 2017, and in the decade 2020rather than manufacture them. to 2030, overtake France, the UK and ultimately Germany. The result wouldGlobal companies have generally be that within 10 years Russia couldexported their consumer goods to become the largest consumer marketRussia and retail of imported goods in Europe.has grown rapidly.For example, L’Oréal has beenimporting its goods into Russia viaa joint venture structure with a localdistributor. In 2011, however, it openedup its first manufacturing facility toproduce its brands locally. Neverthelessin terms of brands in general, Russiahas had success maintaining somelocal brands which have attractedforeign investors such as Proctor &Gamble in the past.Recent transactions M&A activity Date Target Description Acquirer Deal Value 18 50 (US$m) 16 45 Average deal value $mNov 11 Concern Kalina Cosmetics Unilever Plc 682 40 Transaction volume 14 (UK-Netherlands) 35July 11 OAO Melon Apparel East Capital 20 12 30 Fashion Group Explorer AB (Sweden) 10Apr 11 Akvaton Bath furniture Roca Corporacion n/d 25 8 Empresarial, S.A. (Spain) 20Mar 11 Atalant Factory Hosiery products Totall n/d 6 15 4 10Jan 11 Monarch Group Footwear United Capital 30 2 Partners Group 5Jul 10 Askona Holding Furniture Hilding Anders 67 0 0 International AB (Sweden) 2008 2009 2010 2011Jun 10 Moskvichka OAO Apparel and ZAO MDM Aktiv n/d accessories Total deal volumeFeb 10 Imperial Porcelain Porcelain products Evolutsia Porcelain n/d Source: Capital IQ and Manufactory JSC Limited Mergers Alliance Analysis Average deal value $mJun 09 Swedwood Furniture IKEA Torg LLC n/d Esipovo LLCJan 09 Harmony Plus Personal products JSC ARNEST n/dDeal Focus - Russia 33
  • 35. pSpain Suffering consumer Capital acquiring a 40% stake in footwear retailer Tino Gonzalez. With goods sector 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 M&A activity Recent studies show that the average surrounding expenditure per household decreased The troubled Spanish financial system by an additional 6% in 2011 compared the Spanish to 2010. This, in turn, has had a (primarily its problematic solvency ratios), the impairment of real estateeconomy, which has profoundly damaging effect on assets and the ongoing precariousness industrial and business activities,significantly affected surrounding the EU zone has slowed especially in sectors that rely most on investment and inhibited M&A in Spain. financing and sectors that tend to beconsumers, businesses more cyclical in nature. However, some important dynamics have emerged which are drivingand financiers alike, is Consumer branded goods companies M&A activity.expected to continue. (especially those below the luxury and Foreign companies are acquiring premium classes) have been affectedWe expect consumer as the overall sector encompasses a Spanish consumer companies to take advantage of opportunitiesM&A activity in Spain variety of highly cyclical sub-sectors. arising from the lowered EBITDA Nonetheless, even in this challenging multiples valuation expectations.to be dominated by environment the margins of Spain’s Spanish companies have developedcross-border deals. largest consumer groups, including overseas acquisition strategies to Grupo Inditex (Zara, Massimo Dutti,Divestment of non- Bershka), Grupo Fagor (Fagor, Edesa, supplement stunted domestic consumption. We expect the focusstrategic assets by Aspes), and BSH Electrodomésticos, to be on emerging South American are all expected to remain buoyant. companies.companies trying to Companies will continue to divestoptimise their core Cosmetics and apparel non-strategic assets, with thebusiness operations attractive intention of preserving their businesses by focusing onwill also likely In the midst of all of the economic optimising their core activities.continue.” uncertainty, deal activity has remained relatively stable with volume andIñigo González Gaytán de Ayala, average deal value peaking just before Multi channelled sales the height of the downturn. There wasNorgestion 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 - Spain34
  • 36. Industry insight Where would you be most willing as well as individuals. Banks are to invest globally? heavily restricting credit lines. UnlessName: Carlos Gordillo Cruz this gets resolved, a return to aCompany: ProA Capital As a regional Iberian fund (Spain and growth path and an auspiciousPosition: 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 Average deal value $mDec 11 Punt Mobles S.L. Furniture Valcapital Gestión n/d 25 Transaction volume SGECR, S.A. 50Jul 11 Eureka Kids Toys Nazca III 14 20 40Jul 11 Comdipunt S.A. Apparel & clothes Barcel Euro S.L. n/d 15 30Jun 11 Sprinter Apparel & clothes JD Sports 29 10 20 Megacentros Fashion Plc (UK)May 11 King Espana Household products Bunzl Plc n/d 5 10 Complementos S.L. (UK)Mar 11 Grupo Tino Apparel & clothes Atlas Capital 15 0 0 Gonzalez Private Equity 2008 2009 2010 2011Nov 10 Misako Apparel & clothes Garcia Family; n/d Torres FamilyOct 10 Mediterranea de Household PHS Serkonten n/d Total deal volume Servicios products Source: Capital IQ and Mergers Alliance Analysis Average deal value $mOct 10 Suquinsa S.A. Personal care Ubesol, S.L. n/dJul 10 Pepe Jeans, S.L. Apparel & clothes L Capital 112 Management (Fra)Deal Focus - Spain 35
  • 37. United Kingdom g Understanding consumer However the changing shape of the consumer industry with a shift from demands key to success ‘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. markedly of and social media comments. The There has been less activity in the consumer has become impatient andlate due to both the demands real-time service 24/7 with UK consumer goods sector although luxury and premium branded product products available at any time througheconomic environment any channel. businesses have continued to attract significant multiples such as theand the proliferation of The successful consumer products acquisition of Jimmy Choo byonline 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 platformsopportunities for and multi-channel marketing and sales strategies can be implemented to meet Beauty products sectorcompanies and these changing consumer demands. displays the lipstick effectinvestors and driven The lipstick effect is the theorya lot of the recent M&A activity focused that when facing an economic crisis consumers will be more willing to buyM&A activity in the on distribution lower price point premium products Historically, the UK high street has that still generate the feel good factor.industry. We expect proved attractive to investors due to the For example instead of buyingthis to continue for predictable, sustainable cash flows and expensive designer coats, people the ability to roll out successful formats. will still buy expensive lipstick andsome time.” A significant amount of the UK high cosmetics. street has been bought and sold bySteve Currie, The M&A appetite for beauty products private equity over the last 5 to 10Catalyst Corporate Finance has also continued through the 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 - UK36
  • 38. The trend has continued through the M&A activity has polarised betweeneconomic downturn although the focus luxury or premium branded businesseshas moved away from single channel at one end of the market andretail distribution to multi-channel discounters at the other. The massdistributed products including high market has increasingly becomestreet retail, online, mail order and less attractive due to the lack oftelevision. differentiation and competitive advantage of many businesses.They have also been active in moretraditional consumer product areas The consumer sector has sufferedwhere the downturn in the market has as the UK government’s austerityresulted in ‘category killers’ with strong measures impact on consumerconsumer brands, which have confidence. With the IPO market forincreased market share in declining businesses likely to remain closedmarkets as competitors have failed through 2012 and an increasingin the more testing economic nervousness from debt providers weenvironment. This is evidenced expect corporate acquirers to continueby the acquisition of Brintons, the to consolidate consumer markets tomanufacturer of carpets by The Carlyle offset the slower rate of growth in theirGroup and the acquisition of Sharps core business.bedrooms and bathrooms by SunEuropean Partners. We expect furthersimilar opportunities to emerge.M&A outlook for 2012The M&A environment for the consumersector has become tougher withincreasingly volatile trading conditionsand a darker consumer outlook.Corporate buyers have regularly outbidprivate equity for many transactionspaying valuations of 10 x to 20 xplus EBITDA.Recent transactions M&A activity 100 300 Date Target Description Acquirer Deal Value (US$m) 90 250 Average deal value $mDec 11 Wiggle Online cycling and Bridgepoint Capital 288 80 Transaction volume sporting goods 70 200Dec 11 Jacques Vert Womens clothing Sun Capital 66 60Sep 11 Brintons Residential and The Carlyle Group 32 50 150 commercial carpets 40Jul 11 Moonpig.com Online card retailer Photobox 192 100 30 20Jul 11 Original Beauty products LDC n/d 50 Additions 10Jul 11 Sharps Bedrooms Bedroom and home Sun European n/d 0 0 office furniture Partners 2008 2009 2010 2011Jul 11 Myprotein Sports supplements The Hut Group 95 and nutrition Total deal volumeMay 11 Jimmy Choo Shoes and LABELUX Group 932 Source: Capital IQ and accessories (Germany) Mergers Alliance Analysis Average deal value $mMay 11 Silentnight Group Beds and H.I.G. Europe n/d mattressesMay 11 Jojo Maman Bebe Maternity wear and Magenta Partners n/d baby clothingDeal Focus - UK 37
  • 39. Sector Report 2012ContactsInternational 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 USAMergers Alliance is a group of award winning Stas Michaelcorporate finance specialists who provide high Mergers Alliancequality advice to organisations that require +44 207 881 2990 stasmichael@mergers-alliance.cominternational reach for their M&A strategies.Over the past 12 months our partner firms Andre Johnstonhave collectively completed over 100 deals, Mergers Alliancein 30 countries worldwide with an aggregate +44 207 881 2967value of over US$3 billion. andrejohnston@mergers-alliance.com Consumer Goods - Contacts38
  • 40. AmericasBrazil Mexico USAFelipe Monaco Christian Garcini Garcia Brian MulvaneyBroadSpan Capital Sinergia Capital Headwaters MB+5521 3873 8000 +52 55 2167 1810 +1 49 706 8440fmonaco@brocap.com cgarcini@sinergiacapital.com.mx bmulvaney@headwatersmb.comAsia, Africa and Middle EastChina JapanAndre Johnston Tomoki TanakaMergers Alliance IBS Yamaichi Securities+44 207 881 2967 +81 3 6895 5521andrejohnston@mergers-alliance.com tomoki.tanaka@ibs-sec.comIndia TurkeySujay Kotak Ozkan YavasalSinghi Advisors Daruma Corporate Finance+91 22 6634 6666 +90 212 370 60 60sujay@singhi.com ozkan.yavasal@daruma.com.trEuropeFrance The Netherlands SpainMichel Degryck Bart Jonkman Iñigo González Gaytán de AyalaCapital Partner BlueMind Corporate Finance Norgestion+33 148 246 300 +31 73 623 8774 +34 943 327 044m.degryck@capital-partner.com bart.jonkman@bluemind.nl Igonzalez@Norgestion.comGermany Poland United KingdomStefan Constantin Michael Harvey Steve CurrieCH Reynolds Corporate Finance IPOPEMA Securities Catalyst Corporate Finance+49 69 97 40 30 0 +48 22 236 9200 +44 20 7881 2990s.constantin@chrcf.com michael.harvey@ipopema.pl stevecurrie@catalystcf.co.ukItaly RussiaNuccia Cavalieri David WolfeEthica Corporate Finance Northstar Corporate Finance+39 02 92 88 04 00 +7 495 937 5855nuccia.cavalieri@ethicacf.com david.wolfe@northstarcorporatefinance.comConsumer Goods - Contacts 39
  • 41. Sector Report 2012TransactionsMergers 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 - Transactions40
  • 42. 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 TurkeyCzech Republic Netherlands UK Denmark Norway USAwww.mergers-alliance.com