In 2023, many consumer products (CP) companies focused on profitability and optimization of existing assets instead of making large growth-oriented investments in their business. Acquisition activity also slowed, as many companies focused on refining their core offerings in preparation for moves in the future. In addition, a challenging financing environment with higher interest rates and recent pauses in Fed hikes has caused many companies and investors to take a “wait and see” approach to dealmaking. After examining recent deals in the last year, we’ve highlighted four themes within the consumer products industry. Below, we outline 2024 M&A deal trends in consumer products as we move forward into this year.
- Companies Investing in Premium Brands Spurred by Consumer Trends
- Restructuring Portfolios to Promote Long-term Growth
- Companies Seek Opportunistic Adjacent Category Expansion
- Mid-Market Players Expanding Reach and Capabilities
M&A Trends in Consumer Products
Trend 1: Companies Investing in Premium Brands That Meet Latest Consumer Trends
Companies continue to invest in brands delivering on consumer trends that they believe will sustain over the long term. This, coupled with higher margin profiles of premium brands, creates attractive targets in the market. Consumers are increasingly valuing what goes into the products and companies they’re putting their money behind. As Gen Z and Millennial shoppers grow to be a larger portion of consumers in the market, companies need to offer brands people trust. Harvard Business Review findings report that when Gen Z or Millennial customers believe a brand cares about its impact, they’re 27% more likely to purchase.
CP companies are expanding their portfolios by exploring premium products, particularly in food and beverage. Premium brands promise sustainably sourced, simple, and high-quality ingredients, striking a chord with consumers by addressing their concerns around “What am I eating?” Consumers are more mindful of what is in their food and are leaning toward picking the healthier options off the shelf going into 2024.
[August 2023]: Molson Coors Beverage Company acquires Blue Run Spirits
Blue Run (a high-end, award-winning bourbon and rye whiskies producer) is Molson Coors’ (an international brewer and distributor) first acquisition of a spirits brand. The addition of Blue Run boosts the company’s footprint in spirits as it continues to evolve from its storied history as a beer company to a more premium portfolio.
[August 2023]: Campbell Soup Company acquires Sovos Brands
Campbell Soup Company (a leading soup and snack company) acquires Sovos Brands (a premium ingredient-focused food manufacturer and distributor) for $2.7B to diversify Campbell’s portfolio by enhancing its Meals & Beverages division with additional growth-oriented brands, including premium market-leading Rao’s to complement its core, mainstream portfolio and provide runway for adjacent category expansion.
Trend 2: Restructuring Portfolios to Promote Long-term Growth
It’s routine for companies to take inventory of their portfolio as they look ahead to the next year, but 2023 proved to be a year of portfolio restructuring across consumer goods companies to center around their core products and invest in areas where they expect to nourish long-term growth. “We don’t play the short-term game when it comes to M&A. We go get brands we like. We hold them for a long time. We grow them,” said General Mills CEO Jeff Harmening.
As a part of restructuring, divestitures and carve-out numbers were up in 2023. Divestiture activity is likely a good indicator of a resurgence for M&A in 2024. As companies use their freed-up cash from divestments to fund strategic growth or transformational programs, pay down debt, fund new acquisitions, and reward shareholders. However, private equity companies in particular trended toward smaller deals because of the higher cost of leverage, as indicated by lower year-over-year deal value than deal volume. Investors are looking to invest in companies with proven concepts to bolster their road to profitability. Major players are looking to invest in growing areas for their business with key market examples being snacks, frozen foods, and “better for you” healthier alternatives.
[May 2023]: Campbell Soup Company Divests Emerald Nuts
In selling Emerald, Campbell Soup is narrowing its focus and divesting its only nut-focused brand. The sale is part of Campbell’s ongoing strategic process to create a greater focus on driving accelerated growth across their snacks division and power brands.
[October 2023]: Kellogg’s Splits into Two Separate Entities
Kellogg’s restructure to split Kellanova (a snack conglomerate) from WK Kellogg Co. (a cereal company) was to strategically foster growth with the foundation of iconic brands. The company said the split will result in “greater operational focus and fit-for-purpose strategy and resource allocation,” allowing Kellogg to invest in differentiated brands to deliver strong net sales and earnings growth over time. Despite Kellanova having a growth-oriented portfolio, both organizations will focus on better integrating their commercial strategies and execution with thoughtful modernizations to their supply chains.
[January 2024]: Haleon to Sell Chapstick to Suave Brands Company
Haleon plc, a global leader in consumer healthcare, entered into an agreement to sell Chapstick to Yellow Wood Partners for a sum of $510 million. The deal includes $430 million in pre-tax cash proceeds, which will be used to pay down debt faster, along with a passive minority interest in the Suave Brands Company. CEO Brian McNamara states the deal announcement “is consistent with Haleon being proactive in managing our portfolio and being rigorous and disciplined where there are opportunities for divestment.” This example demonstrates the value of major players focusing on their core strengths and simplified business strategy.
Trend 3: Companies Seek Opportunistic Adjacent Category Expansion
As companies homed in on their core capabilities in 2023, they looked to make strategic investments in adjacent categories that would expand their reach while leveraging their key competencies. There are examples of this activity in food and beverage and personal care categories. Consumers are valuing convenience, quality-made items, and brands they can trust. Platforms already delivering in these categories are looking to acquire growing brands that support the same mission – and cash-rich companies will seek opportunities to buy weakened competitors and invest in technologies that will drive competitive advantage moving into 2024.
[July 2023]: Monster Beverage Corporation Acquires Bang Energy
Monster (a holding company which operates through its consolidated subsidiaries to develop and market energy drinks) acquires Bang Energy (a leading energy drink producer) for $362MM after Bang’s parting from PepsiCo earlier in the year. The acquisition included Bang Energy beverages and a production facility. Monster says it is “enthusiastic about the opportunities this acquisition presents…and believe that the Bang brand will fit well within [its] broader portfolio of energy drink brands.” Buying out their competitor strengthens Monster’s advantage in the energy beverage market.
[September 2023]: e.l.f. Beauty Acquires Naturium
e.l.f. Beauty (a professional quality affordable makeup and skincare product company) acquires Naturium (a clean skincare company) for $355MM in a combination of cash and stock to further its mission to make the best of beauty accessible. Acquiring Naturium, adds a fast-growing, high-performance skincare disruptor to e.l.f. Beauty’s portfolio of brands. e.l.f. SKIN is one of the fastest growing skincare brands, and Naturium joining e.l.f. Beauty presents a unique opportunity to significantly accelerate the potential in skincare.
[December 2023]: Chobani Acquires La Colombe
Chobani (a food and beverage company originally known for its high-quality Greek yogurt) acquires La Colombe (a Ready-to-Drink coffee company) for $900MM. Chobani’s focus on ready to consume products designed for convenience combined with their execution ability in liquid products makes ready-to-drink coffee a great choice. Chobani’s goal is to elevate La Colombe’s true sales potential and enhance La Colombe’s procurement practices.
Trend 4: Mid-Market CPG Players and PE Firms Alike Still Interested in Pet Category
In 2023, mid-market players aimed to gain scale and reach to accelerate growth. The main drivers of M&A activity included the refinement of brand portfolios and the improvement of manufacturing and production capacity. The pet industry had notable movement in this area as the pet boom of 2020-2022 kept pet food and products at the forefront of consumers’ and business leaders’ minds.
Looking ahead to 2024, we expect manufacturers to leverage M&A to gain synergies in manufacturing and work toward hitting profitability goals. In the pet industry, categories across treats, supplements, and pet health are favorable candidates for M&A activity due to the driving health-focused mindset of pet owners.
[March 2023]: Natural Balance Merges with Canidae
Natural Balance (a pet food company that manufactures protein-focused, premium dog and cat food and pet treats) merges with Canidae (a dog and cat food producer with an emphasis on regenerative agriculture and sustainable operations) to create a specialty pet food enterprise, Ethos Pet Brands, focused on responsibly sourced ingredients.
[December 2023]: Post Holdings Acquires Perfection Pet Foods, LLC
Post Holdings, Inc. (a consumer products goods holding company focused on the food business) acquires Perfection Pet Foods, LLC (a leading manufacturer and packager of private label and co-manufactured pet foods and baked treats) for $235MM to expand their production capacity.
Looking Ahead: 2024 M&A Deal Trends in Consumer Products
Slower and more strategic M&A activity in 2023 laid the groundwork for increased, but still strategic, activity in 2024. Companies will continue to opportunistically look at the target set to see what best matches their needs. For some, it’s to double down on a core area of focus, and for others, it’s to expand into new markets and find growth outside the core. They will do this in conjunction with other means of venture betting, like accelerators, to have their finger on the pulse of the consumer and overall market demand.
Macroeconomic and geopolitical factors are still at play as companies and their leadership continue to navigate what they want their future landscape to look like. Private equity M&A activity is expected to increase in 2024, with record-high “dry powder” firms will be driven to deploy their capital via advantageous valuation opportunities.
Our M&A consulting team continues to have a pulse on the latest trends, insights, and capabilities required by company executives and investors alike when progressing through the deal process. To better understand how these trends impact your business, reach out to us.
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