Strong retail and consumer deal activity in 2012 drove both deal volume and value up from the prior year as the number of larger deals over $1bn almost doubled. Private equity activity in the retail sector comprised nearly 40 percent of deal volume and 55 percent of deal value, and IPO volume increased 38 percent.

"While the prolonged negotiations on the fiscal cliff dampened the positive momentum heading into 2013, consumer sentiment improved significantly, and we expect retail and consumer companies to continue to use acquisitions to drive growth and adapt to the latest consumer trends," said Leanne Sardiga, partner at PwC U.S. "We expect several factors to impact the R&C deal landscape in 2013, including continued cross-border activity, additional investment by PE investors in retail, and companies continuing to expand omnichannel capabilities."

According to PwC, there were a total of 130 deals in the retail and consumer sector with values greater than $50m in all of 2012, representing $91.2bn, a 20-percent increase in volume and doubling the value seen in 2011. During the fourth quarter of 2012, deal volume and value increased 21 percent and 100 percent, respectively, to 41 deals at a total value of $26.2bn, from the fourth quarter of 2011, which PwC attributes to sellers pushing to close deals before year end.

Deal activity in the consumer space continues to be partially driven by large CPG companies selling non-core operations and brands. PwC expects the trend to continue during 2013 as CPG companies look to sell underperforming assets and reinvest in higher margin and growth products and markets.

Cross-border deal activity has remained consistent with prior year levels, representing 40 percent of deal volume and 50 percent of deal value in 2012. Asia was a leading area for U.S. investment abroad as U.S. companies continue to seek out opportunities to take advantage of the expected growth in consumer spending across the Asian economies. Internationally, PwC anticipates R&C companies to continue to invest in emerging markets, with China and Brazil being a focal point as their middle class continues to expand and their consumer economy grows.

Divestitures (excluding spin-offs) during 2012 represented 30 percent of R&C deal volume compared to 32 percent in 2011. For deals with values greater than $50m, divestiture deal volume was relatively flat compared to 2011, while deal value was up $18bn, largely driven by one major deal during the year. In addition to divestitures, the R&C sector has seen continued activity in corporate spin-offs as companies reassess their portfolios and positioning in an increasingly competitive environment. Corporate spin-offs in 2012 generally focused on realigning businesses to distribution channels or high versus low growth product segments and, according to PwC, as these companies begin to operate separately, it is expected that there will be increased M&A activity to drive growth in the re-focused business segments. Moreover, PwC expects consumer-branded companies to continue to evaluate their portfolios and divest or spin-off products.

Positive deal trends across sub-sectors

The report states that the retail and consumer sector continues to be largely driven by food and beverage transactions both in terms of deal volume and deal value. While the number of food and beverage deals decreased from 2011, total transaction value returned to historical levels seen in 2009 and 2010 from a five-year low of $7bn in 2011 to $36bn in 2012 - a 414-percent increase. Average deal size in food and beverage also bounced back and grew from $107m in 2011 to $617m in 2012 as a result of eight food and beverage mega transactions and corporate buyers' decision to more aggressively grow through acquisition.

Specialty retail, after several years of very little M&A activity, saw an increase in mid-market acquisitions in 2012 with 18 deals (with values greater than $50m) compared to less than four deals in 2011 and 2010. Also, the value of billion-dollar-plus deals more than doubled over the same periods - resulting in a banner year in terms of transaction value with approximately $14bn in disclosed deals.

Private equity continued to play a pivotal role in the apparel, footwear and accessories, and restaurants subsectors, accounting for slightly less than half of all transaction volume and nearly 80 percent of transactions valued at more than $1bn. Restaurant deals were also heavily dominated by financial buyers and PwC expects PE will continue to be active in the restaurant subsector as they see opportunities to improve operating efficiencies during the economic downturn and position for growth.

Grocery, drug, discount, and mass retailer deal volume and value saw better than average growth during the year as well. Deal volume and value for deals over $50m more than doubled over the prior year, with the volume increase driven by middle market deals (greater than $500m) and growth in deal value due to the several large deals.

Retail and consumer IPO volume during 2012 increased 38 percent compared to 2011, although IPO proceeds decreased 28 percent - mainly a result of two large IPOs in 2011 that raised proceeds of $2.2bn. Retail IPOs drove the volume growth in the R&C sector during 2012 as they doubled compared to 2011, raising $1.8bn. The number of consumer IPOs was down slightly compared to 2011 and raised $1.4bn in proceeds. Financial sponsors remained active in the sector, backing 13 and 14 IPOs in 2011 and 2012, respectively, representing $4.1bn and $1.7bn of the proceeds raised.

"A positive deals outlook for the R&C sector is expected for the year ahead as corporate cash balances remain at all-time high levels and the dry powder and low debt financing costs in private equity should contribute to on-going deal activity," added Sardiga.

Source: PwC