Consumer sector deals rise in January-March quarter amid consolidation

Tech-focussed firms driving interest

Consumer companies are looking at inorganic ways to grow their business and also enter new categories, driving up the number of deals in the sector.
 
The number of deals in this space jumped to 74 in the January-March quarter of 2022 from 45 in the corresponding period last year. Also, the value of deals increased to $1.4 billion compared to $566 million in the year-ago quarter, according to data sourced from the industry.
 
While the number of mergers and acquisitions (M&As) in the consumer space doubled from 21 to 42 during the period under review, the entire deal value of M&As was pegged at $469 million compared to $384 million a year ago.
 
The number of private equity (PE) deals declined, but there was huge growth in value this year to $916.3 million compared to $181.8 million in the year-ago quarter.
 
“Deal interest and activity continue to be tilted towards internet consumer companies with a digital-native yet omni-channel orientation. The beauty and personal care sector is witnessing strong PE and strategic sponsor-led consolidation. Developing a house of brands through platform aggregation is likely to witness conceptual traction,” Angshuman Bhattacharya, national leader, consumer products and retail, EY India, told Business Standard.
 
However, Sudhir Dash, founder and CEO at Unaprime, an investment advisory firm, believes that there is huge consolidation in the consumer space due to which the number of deals has increased. “The economics of scale is finally catching on as the cost of distribution and sourcing is better when done at scale. While direct-to-consumer companies are supporting the growth in merger and acquisitions and private equity investment, there is a lot of interest which has also been coming in from major conglomerates, including family offices,” he said.
 

Dash also said that when there is consolidation, there is benefit of better margins, coupled with common distribution mechanics, and everyone seems to be realising that. Also, technology is helping disruption in the category and reach scale. “Not having a distribution network is no longer a must-have to start a consumer brand. Brands now have alternative sources to expand,” said Dash. He cited the example of Mamaearth, which is a local brand catering to a particular need of the consumer. Technology has helped such brands cater to local requirements.
 
Dhanraj Bhagat, partner at Grant Thornton, said technology is going to be one of the major drivers in the consumer sector which has led to the number of transactions increasing. “Beauty and personal care brands are mostly launching online. A large part of the consumer and retail growth will start to come from the digital space in the next five years.”
 
Companies like Tata Consumer Products are also looking at expanding beyond food and beverages and may also look at acquisitions to grow. The same is the case with Reliance Retail as it aims to grow its revenue from consumer goods to Rs 50,000 crore in the next five years, according to a source in the know. Reliance Retail is also considering acquisitions of smaller brands to which it can provide scale and reach to grow.