According to a new report by global strategy consulting firm AT Kearny, though global merger and acquisition activity in the consumer and retail sector collapsed by over a third last year, the M&A market is expected to remain active in 2020.
The report pinpoints a previously overheated deal market as one of the major slowing factors for the market last year. A decade of peak activity fueled by economic expansion led to a consolidation wave and a narrowing deal pipeline, seeing deal activity plateau due to the saturated M&A market, exacerbated by record-high valuation multiples.
Meanwhile, CxO’s – in particular of large players in the industry – became more critical of their merger and acquisition investments, in light of growing integration complexity following a decade of bolt-on and digital transformation. This led to higher than expected integration costs and less value creation than anticipated.
More than half of the deals closed in 2019 were aimed at diversification in geographies, capabilities, or industries, as opposed to scale deals that mainly focus on expanding market share.
In order to mitigate risks, buyers have been turning to smaller and less risky deals, a trend that is expected to continue into 2020. According to the report, this year, 69 per cent of consumer executives and 47 per cent of retail executives will look for assets less than $500 million in valuation.