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Appetite for M&A grows in consumer goods and retail sector

More than half (51 per cent) of consumer goods and retail (CG&R) sector companies are focusing their M&A strategy on high-growth economies, rather than domestic (30 per cent) or global developed markets (19 per cent), according to a survey published by Clifford Chance.

The research, which was conducted by the Economist Intelligent Unit on behalf of Clifford Chance, surveyed nearly 400 companies with annual revenues in excess of USD1bn from across a range of regions and industry sectors, including the CG&R sector.
The survey revealed a positive outlook for the sector with 60 per cent of CG&R companies expecting current M&A activity levels to be maintained or increased over the next two years. Some 88 per cent of sector respondents expect to focus on strengthening their core business rather than diversifying into new areas.
Features associated with global expansion topped the list of risks and/or barriers to cross-border M&A in the sector in the next two years: increased competition (32 per cent), political uncertainty (28 per cent), rising costs (26 per cent), currency fluctuations and regulatory risk (both at 25 per cent) are all in the top five.
Growth markets feature highly in the top ten attractive destinations for M&A in the sector with Brazil (26 per cent), China (25 per cent) and India (23 per cent) all in the top five. But China, along with other emerging markets in Africa, the Gulf and Russia, also ranks highly as a risky destinations for M&A for CG&R respondents (Sub-Saharan Africa: 28 per cent, Northern Africa: 26 per cent, Gulf States: 25 per cent, China: 20 per cent, Russia: 19 per cent).
Although respondents from the CG&R sector selected company cash reserves as the preferred method of financing deals, the report reveal significant variations when responses were cut regionally. While European respondents agree with the global consensus, for those in Asia-Pacific and North America, debt financing is the chosen method.
Respondents in the CG&R sector select joint ventures/partnerships with strategic investors as the preferred deal structure currently (39 per cent), taking over from traditional M&A which would have taken the number one spot two years ago (42 per cent).
Protectionism and restrictions on level of foreign ownership are seen as the biggest legal/regulatory issues for CG&R organisations when considering cross-border M&A opportunities. They see tax laws as the biggest hurdle in their domestic markets. Asked to considering the political factors that give them greatest concern in terms of cross-border M&A activity over the next two years CG&R respondents select bribery and corruption and poor protection of foreign investors’ economic rights as the top two concerns at 39 per cent and 32 per cent respectively.
Catherine Astor-Veyres, Clifford Chance’s global head of CG&R M&A, says: “The CG&R sector is an important one for global M&A activity (around eight per cent) with Asia-Pacific outbound M&A, in particular, growing rapidly. We see the regions with the greatest potential as Asia (especially China and Japan) and Russia. In China, the dynamism of outbound M&A is fuelled by the rising purchasing power of the Chinese consumer, the huge foreign reserve and the strong Renminbi and government policy encouraging overseas acquisitions. Japan benefits from a strong Yen and healthy balance sheets, but limited growth in the Japanese domestic market, leaving little choice but to look offshore. Russia has a buoyant M&A market with a growing affluence of middle classes."

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