The much anticipated sale of Unilever’s spreads business, which includes brands Flora and Bertolli, to private equity group KKR for $8bn was the largest food deal in H2 2017, and also the biggest leveraged buy-out in Europe announced in 2017(1). The deal followed an internal review by Unilever to reshape and focus their product portfolio for future growth which was in part prompted by Kraft Heinz’s takeover attempt in February 2017(2). The Spreads business represented c.7% of Unilever’s global sales and employs 2,300 people globally(3) and with the margarine sector in decline as consumers become increasingly health conscious (UK margarine sales were down -12% whilst butter sales were up +2% in 2017 compared to the prior year)(4), this disposal fully aligns with Unilever’s strategy.
Unilever was not the only consumer giant sharpening the pencil on their portfolio. Reckitt Benckiser completed the sale of its food division, which included brands French’s mustard and Frank’s RedHot sauce, for $4.2bn to McCormick. This follows Reckitt’s $17.9bn acquisition of baby formula maker Mead Johnson in H1 2017, and continues the momentum towards being a focused consumer health and hygiene group.
Activity in the US in H2 2017 further buoyed deals in the food space, with Campbell Soup’s acquisition of Snyder’s-Lance, the listed manufacturer of various snack and bakery items, for $4.9bn, and Hershey’s $1.5bn acquisition of Amplify Snack Brands. In 2018, the pace of activity has shown no sign of slowing down with Nestlé agreeing to sell its US confectionery business to Ferrero for $2.9bn(5), reinforcing their strategic focus on nutrition, health and wellness. And there could be more to come with activist investor Third Point putting pressure on Nestlé to sell off “ill-fitting businesses” and focus on growing categories. Shareholder activism is becoming increasingly prevalent and a similar situation of activist pressure at Danone, with Corvex Management looking to “squeeze value”, could result in a number of disposals(6).
PwC were involved in over half of the top 10 Consumer deals in H2 2017, including the largest, the sale of Unilever spreads
There’s also been plenty of appetite for deals in the drinks sector. The sale of Refresco quenched PAI and British Colombia’s thirst for the listed Dutch manufacturer of private label juice and soft drinks, acquired for $1.9bn. Separately, Refresco announced it was acquiring Cott Beverages, which includes Cott Corporation’s bottling activities in the UK, North America and Mexico, for $1.25bn. There is however uncertainty over how this is going to play out, as at the time of writing, the UK CMA announced their objection to this deal, citing competition concerns over the juice production process which only Refresco, Cott and one other competitor in the UK currently employ.
Sabeco was the tipple of choice for trade buyer ThaiBev, who purchased a stake in Vietnam’s leading beer producer from the Vietnam government for $4.8bn. There also continues to be a flurry of activity from beer giant AB InBev as they divest non-core assets following the acquisition of SABMiller to address competition concerns. They recently announced the sale of two of their German beer brands, Hasseroeder and Diebels, to CK Corporate Finance refocusing their position in Germany on key brands, namely Beck’s, Franziskaner and Corona.
Along with the beer deal in Vietnam, the sale of Brazilian dairy producers Vigor Alimentos and Itambe for $1.6bn to Grupo Lala, the Mexican dairy producer, buoyed deal activity in the emerging markets. H2 2017 also saw Unilever acquire Carver Korea, the Korean cosmetics manufacturer, for $2.7bn which was the largest non-food or drink deal in the Consumer sector in H2 2017.
Drinks deals have continued to flow in 2018; JAB Holdings’ acquired Dr Pepper Snapple for $18.7bn as they focus on the food and drink business(7) and Bacardi purchased Patron Spirits International for $5.1bn as they continue their expansion into the US market(8).
With the exception of KKR acquiring Unilever spreads and PAI acquiring Refresco, H2 2017 deal activity was dominated by corporate buying activity. We expect this momentum in deals activity to continue, with pressure being applied both internally and externally on large consumer groups to review their portfolios and divest and/ or acquire brands and products that align with their core strategic priorities and secure longer term growth. A positive prospect for consumer M&A in the short to medium term.
(1) Source: Bloomberg
(2) Source: Reuters and multiple news sources
(3) Source: Unilever press release and annual report
(4) Source: Kantar Worldpanel
(5) Source: Nestlé / Ferrero press release
(6) Source: Financial Times
(7) Source: Bloomberg
(8) Source: Reuters