Retail M&A ‘ripe’, says Baker McKenzie forecast

With global transactions expected to hit US$632.6 billion this year, the consumer sector is ripe for mergers and acquisitions (M&A) growth, according to Baker McKenzie’s Global Transactions Forecast, developed in association with Oxford Economics.

“The way we shop has probably changed more in the past five years than in the past 50,” says Baker McKenzie’s Global Consumer Goods & Retail Industry Group chairperson Alyssa Gallot-Auberger. “The new consumer often uses a physical shop as a place to have an experience rather than a place to buy things.”

As more of these new consumers go online to buy everything from clothes and electronics to household supplies and organic vegetables, transactions in the consumer sector are likely to continue rising, says the forecast.

Digitisation and consolidation within the industry drove M&A activity last year, pushing transaction values to $543.2 billion.

As these trends accelerate with a stronger global economy, Baker McKenzie forecasts M&A activity in the consumer sector to rise across all regions this year. North America will lead with $304.4 billion in transactions totaling, with Asia Pacific ($125.9 billion) trailing Europe and heading off Latin America.

Pent-up demand

Rising GDP and younger, increasingly internet-savvy consumers are expected to push Asia Pacific growth up 21 per cent over last year’s total of $104 billion.

“Pent-up demand will drive deal activity, not just from strategics, but also private equity funds that are cashed up,” says M&A partner Brian Chia of Wong & Partners, the Malaysian member firm of Baker McKenzie. “Private equity will be a key driver of deal activity in the consumer sector as fund sizes grow bigger and become more focused on specific Asian markets.”

Government restrictions that stifled outbound Chinese investment last year have been eased, so this is expected to rebound.

“Consumer is still one of the top sectors for outbound investments by Chinese companies seeking growth beyond the domestic market,” says M&A partner Tracy Wut of Baker McKenzie Hong Kong. “Factors such as rising disposable income, the demand for high-quality branded products, and vertical integration in supply chains will all contribute to increased deal activity.”

Meanwhile, in the capital markets, the consumer sector was the most active by IPO volume last year, with 348 listings worth $38.2 billion, up 37 per cent over 2016. Baker McKenzie forecasts consumer listings to accelerate further this year, by nearly 60 per cent in total value to $59.8 billion.

Asia Pacific led the resurgence in the sector last year, while China remains the top destination for listing by consumer companies, which raised $7.8 billion worth of capital last year. This trend is expected to continue as consumer and retail companies look to tap the expanding middle class, growing consumer markets and rise of online shopping.

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