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US Retail & Consumer deal value jumps 148% during Q1

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US Retail & Consumer deal value jumps 148% during Q1

While consumer sentiment hits 10-year high, core retail trade sales stagnate.

The US retail and consumer sector experienced a strong first quarter in 2015 for merger & acquisition activity, which was driven by seven megadeals (deals with a value of over $1 billion), according to a quarterly analysis by professional services firm PwC. 

According to the report, 39 deals were announced for the quarter (with values over $50 million), up 11% from the fourth quarter of 2014, but down nine percent from the first quarter of 2014. Total transaction value for the first quarter of 2015 of $78.8 billion was up 272% from $21.2 billion in the fourth quarter of 2014 and up 148% compared to the same time period last year – as one major megadeal accounted for 67% of the total deal value announced in the first quarter.

Private equity participation continues to be active.

"First quarter M&A activity in the retail and consumer sector was driven by seven mega deals and anchored by a large food and beverage deal. As some large diversified food companies are being challenged by smaller more focused enterprises, these companies are splitting into smaller businesses to better compete," said Leanne Sardiga, partner and PwC's US retail & consumer deals leader. "The first quarter also saw consumer sentiment reaching a 10-year peak; yet, core retail trade sales stagnated. Although retailers catering to lower and middle-income consumers may benefit disproportionately from fuel price declines, organic growth may remain a challenge. However, we anticipate that companies will continue to engage in deals to drive growth."

Private equity participation continues to be active, with nine PE deals each valued over $50 million announced for the first quarter. PE volume as a percentage of total deal volume was 23%, down from 37% in the fourth quarter of 2014 and down from 26% in the first quarter of 2014. However, PE value as a percentage of total deal value was 69%, up from 60% in the fourth quarter of 2014 and up from 12% in the first quarter of 2014.

Cross border activity decreased during the first quarter of 2015 on a sequential and year-over-year basis and represented 31% of deal volume during the quarter, lower than the average of 50% over the past eight quarters. Despite the current quarter's slowdown, PwC expects cross border activity to continue as domestic R&C companies look to expand into faster-growing international markets.

In the first quarter, the R&C sector experienced the slowest quarter since the first quarter of 2011 with only one IPO for the period. The pullback in the R&C sector is consistent with the notable slowdown in the overall IPO market – a likely result of increased volatility in the fourth quarter of 2014, more opportunities for companies to obtain private financing, and an increase in the number of companies dual-tracking their exit strategy.

"R&C deal activity is off to a good start and we expect that the R&C sector will likely continue the positive momentum that has been building over the past few quarters," added Sardiga. "Some factors  that could impact deal-making through the remainder of the year include: continued shareholder activism, companies continuing to reposition their businesses in line with megatrends and alternative business models, access to consumer data tracking and collaborations to help drive growth, continued private equity participation for deal targets and companies adopting an asset-light model."

 

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