M&As In The Age Of Disruption

In the face of disruption, many consumer goods companies are looking at scope M&As. But scope deals are harder to get right

- Peter Horsley, Allison Snider And Brian Mcroskey

For decades, consumer products companies typically joined forces in megamergers designed to build scale and market-leading positions. A wave of consolidation has swept over the industry in the past 10 years, including some of the largest deals inked — Anheuser-Busch InBev and SABMiller, Coca-Cola bottlers’ integrations in Europe and Japan, and Mars and Wrigley, among many others. This was a tried and tested formula to boost earnings growth and margins, as well as the next round of consolidation.

Now, companies are finding that’s not enough to help them respond to industry disruption. Times have changed. Nimble insurgents are taking an outsize share of category growth, Bain & Company research finds. While they may account for only 2-3 per cent of market share for the categories where they are present, they captured over 30 per cent of the growth in those categories over the last four years, up from 25 per cent between 2012 and 2016. Incumbents also grapple with digitalisation, the emergence of low-cost retailers and online/offline retail ecosystems, and an unavoidable new fact of life: The benefits of scale in everything from media buying to retailer negotiations to go-to-market strategy are diminishing.

These factors, combined with an internal focus on the bottom line, have led to a growth slowdown for most consumer goods companies. In response, firms are taking short-term actions, such as trading off margins to regain market share. They are also undertaking different types of deals.

RESPONDING TO INDUSTRY CHALLENGES WITH SCOPE M&A