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Beverage News

Multibillion dollar transactions drive US retail, consumer deals during Q1

Total deal value and volume surges, according to PwC US

April 30, 2013

U.S. retail and consumer merger and acquisition activity during the first quarter of 2013 was defined by six multibillion dollar transactions and alternative deal structures employed to achieve strategic objectives, according to New York-based PwC’s U.S. retail and consumer deals insights Q1 2013 report.

For the three-month period ending March 31, there were a total of 27 deals in the retail and consumer sector with disclosed values greater than $50 million, accounting for $39.8 billion in deal value, according to the report. Deal volume increased 59 percent from the 17 deals during the first quarter of 2012, while deal value rose 590 percent from $5.8 billion in the first quarter of 2012, it states. Deal value was driven by the purchase of Fremont, Ohio-based HJ Heinz by Omaha, Neb.-based Berkshire Hathaway Inc. and New York-based 3G Capital Partners Ltd. for a total value of $28 billion including the assumption of approximately $4.5 billion of debt, it states. Excluding the Heinz transaction, total deal value for the quarter was still more than double that of the prior year’s first quarter, it adds.

On a sequential basis, deal activity in the retail and consumer sector declined in volume from the highs in the fourth quarter of 2012 due in part to the pressure to execute deals in 2012 before the fiscal cliff and pending tax increases, according to PwC.

“The potential negative impact of the fiscal cliff on transactions during the first quarter of 2013 was more subdued than anticipated as deal activity was up significantly compared with the first three months of 2012,” said Leanne Sardiga, partner and PwC’s U.S. retail and consumer deals leader, in a statement. “The attractiveness of the retail and consumer sector as a whole, along with continued availability of capital from both corporate and private equity players, contributed to a positive retail and consumer deals environment. The jump in total deal value was driven by several multibillion dollar transactions.”

PwC notes that private equity buyers continued their positive momentum from 2012, as announced deals with values greater than $50 million were up 18 percent in volume from the fourth quarter of 2012. Private equity deal values increased to $31.3 billion in the first quarter of 2013 compared with $3.8 billion in the fourth quarter of 2012 and $800 million in the first quarter of 2012, according to the report. Although the increase was largely due to the Heinz deal, the total private equity deal value was still $7.8 billion excluding that deal, which was just below the recent peak seen in the second quarter of 2012, it states. In fact, since 2007 there have been only six other quarters with private equity deal value in the retail and consumer industry exceeding $7 billion, it adds.

Cross border activity has been trending up and represented 44 percent of deal volume in the first quarter of 2013 compared with 40 percent on average annually during the last five years, according to the report. Outbound deal activity has been more prevalent so far in 2013, it states.

In recent quarters, the retail and consumer sector also has seen continued activity in corporate restructuring and spin-offs as companies reassess their portfolios and positioning in an increasingly competitive environment, according to the report. Recent corporate spin-offs have generally focused on realigning businesses to distribution channels or high versus low growth product segments, it states. Only one spin-off was noted during the first quarter of 2013, according to the report. Additionally, there were several large divestitures during the quarter. Divestitures as a percentage of deal volume were up slightly at 31 percent during the quarter versus 30 percent in the fourth quarter of 2012 and the first quarter of 2012, it states.

“The overall [initial public offering] (IPO) market was punctuated by a strong start and finish to the quarter, with a small pause from mid-February to early March, demonstrating the importance of new issuers being ready to tap the equity market when the IPO window is open,” Sardiga said in a statement.

Total retail and consumer industry IPO proceeds raised in the United States in the first quarter of 2013 came in strong, far exceeding the comparative period in 2012, the company reports. Total proceeds raised during the first quarter of 2013 were $1.8 billion, up 50 percent from proceeds of $1.2 billion in the fourth quarter of 2012 and up more than 300 percent from the $431 million raised in the first quarter of 2012, it reports. Volume in the first quarter of 2013 was on par with the fourth quarter of 2012 with six IPOs closing and up slightly from the first quarter of 2012, which had five IPOs close, it adds.

“Several alternative deal structures announced during the quarter indicate that retail and consumer companies are pursuing alternatives to grow and improve operations strategically,” Sardiga said in a statement. “In addition, the positive trend seen with large cap deals during the quarter, combined with strong corporate balance sheets, continued low interest rates and relatively high funds available for investment at private equity funds should allow for retail and consumer deal activity to continue its upward path in 2013. We expect companies to focus on international expansion, strengthening omnichannel capabilities and improving profitability through divestment of non-core operations or deals which represent opportunities for cost savings.”
 

KEYWORDS: mergers and acquisitions retailers

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