While this year has seen a handful of marquee CPG M&A moves, economic volatility and declining consumer confidence could be a dealbreaker for many consumer products giants.
Most of the year’s top deals have come in the food and beverage space. The first quarter’s biggest (and buzziest) deal was Pepsi’s proposed purchase of Poppi for almost $2 billion. That was preceded by another major beverage deal, Celsius’s announced acquisition of female-focused energy drink brand Alani Nu for $1.8 billion in March. And yogurt giant Chobani said it’s buying ready-to-make meal brand Daily Harvest, which was valued at $1.1 billion in 2021, for an undisclosed amount in May.
In beauty and personal care, two May deals—E.l.f’s announced acquisition of Hailey Bieber’s Rhode for $1 billion, and Church & Dwight’s plans to buy trendy hand sanitizer brand Touchland in a deal valued up to $880 million—have been highlights.
In Q1, the consumer products space saw an 18% drop in deal volume quarter over quarter, and 13% drop year over year, while deal value (the Pepsi-Poppi deal was nearly a quarter of the $8.6 billion total), was flat QoQ and up 39% YoY, according to KPMG.
As uncertainty proliferates, only low-risk deals based on long-term consumer trends have been struck, while others are waiting out the storm, experts say.
Food & bev
While tariffs and the rising costs associated with them are a consideration, declining consumer sentiment is the driving force of uncertainty in the deal market, Julia Wilson, principal at KPMG US, told Retail Brew. (Consumer sentiment saw five straight months of declines before an uptick in May following President Donald Trump’s halting of Chinese tariffs on May 12.) Wilson, who also runs KPMG’s consumer survey, said consumer behavior of trading down and waiting longer between purchases means food and beverage companies can’t rely on additional price increases to drive sales growth, making structuring deals more difficult.
While Pepsi and Celsius have locked in blockbuster deals, uncertainty has impacted “middle-of-the-pack deal flow,” Wilson said. Some companies are taking a less risky “string of pearls approach,” with smaller acquisitions as companies “are still trying to orient their portfolios in the direction that the consumer is going,” she said.
“There’s a lot of uncertainty that it makes it hard to nail down a value of a transaction, and so some of the guidance that they’re getting is, ‘If it is strategic, we need to stay on strategy. If there is a way to wait, then let’s let some of that noise settle down,’” Wilson said.
Retail news that keeps industry pros in the know
Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.
The deals that have been struck this year have “strong assets, key to the long-term trajectory, aligned with the strategy—those are things that we do see happening,” she noted, and typically align with consumer demand for better-for-you products.
Wilson said that many food and beverage companies are “generally in healthy positions” for deals. Coca-Cola reported better-than-expected earnings in April, and Kraft Heinz said earlier this month it’s “evaluating potential strategic transactions to unlock shareholder value.”
“As they start to feel more confidence in the signals that they’re seeing, deal activity might accelerate,” Wilson said.
Beauty & personal care
Economic volatility and low consumer confidence has also been impacting dealmaking in the beauty and personal care industry, according to Oleg Isakov, principal in Kearney’s consumer practice. While Kearney had initially predicted growth in beauty and personal care M&A activity this year, the softness so far this year could hinder growth.
Many beauty giants like Shiseido, L’Oréal, Estée Lauder, and Coty have reported tough US sales figures in their most recent quarters, and could likely be looking to divest underperforming brands to stabilize their portfolios. Estée Lauder’s Too Faced Cosmetics and Shiseido’s Drunk Elephant could be on the chopping block this year, per a recent Kearney survey of 50 M&A leaders.
“The problem is that markets really don’t commit capital in fog, and so until there’s policy clarity, deal activity will stay muted,” Isakov said. Dealmaking this year has been “conservative, focusing on the fundamentals,” he added.
The skin care and personal care categories have stood out as an M&A deal darling this year, between the E.l.f.-Rhode and Church & Dwight-Touchland deals, along with Unilever’s April acquisition of UK personal care brand Wild. Touchland is the “perfect acquisition target,” as a profitable brand that “owns” the emerging masstige hand sanitizer space, Isakov said. The luxury and fragrance categories haven’t seen much deal action, he noted, as “buyers are waiting” for the outlook to stabilize.
“So assets that do tick those boxes—low risk profile, based on a structural, long-term trend, and where you can generate a lot of value through big brick-and-mortar expansion—those are brands that will definitely continue to be attractive targets in the market,” Isakov said. “The question is, how many of those targets are there really out there that tick all those three boxes?”