?$responsive$)
20 Sep, 2024
Private equity investment volume in consumer staples to reach 5-year low
By Maira Imtiaz and Shambhavi Gupta
The volume of private equity and venture capital investments in the global consumer staples sector could see another down year in 2024.
The number of announced deals totaled 432 for the year through Sept. 2, or roughly 55% of the 789 transactions recorded in all of 2023, according to S&P Global Market Intelligence data.
Aggregate deal value through Sept. 2 stood at $7.45 billion, potentially on track to match the $10.07 billion recorded during full year 2023. Deal value and volume have been going down since peaking in 2021.
Drivers behind the decline
Consumer staples are tough to invest in, according to Joe Merrill, co-founder and partner at Sputnik ATX.
"PE firms make money typically by buying a mismanaged company, putting debt on it and by improving the management, making more profit and then being able to sell it for a higher price. But in a commoditized marketplace with very low margins, there's very few companies that just have bad management. If you could improve them dramatically, you can make all this great money. But when you're selling corn, how much better can you make it? You have plenty of room to fall, you have very little room to grow."
Despite an initial surge in investment post-pandemic, inflation led to a decline in unit sales across staple categories, and growth was mostly coming from price increases.
"It's hard to invest in categories as pricing growth is not available going forward," Greg Miller, partner at EY-Parthenon, told Market Intelligence, adding that there was also a significant disconnect between buyers' and sellers' valuation expectations.
Recent consumer weakness prompted investors to focus only on core staples and ultra-luxury goods, said Jeff Collins, managing partner at Cloverlay Investment Management LLC.
– Download a spreadsheet with data in this story.
– Learn about private equity's growing focus on oil and gas.
– Read about private equity investments in battery energy storage.
The packaged foods and meats segment accounted for 38% of the total PEVC investment value in the consume staples sector, surpassing other segments in both deal value and volume.
The segment's attractiveness stems from its potential for brand differentiation, which offers a competitive edge and the ability to command premium pricing to get the return to a private equity investor, Merrill said.
Largest deals in 2024
The largest deal of the year through Sept. 2 was the announced acquisition by Investindustrial and Sammontana SpA of frozen bakery products company Forno d'Asolo SpA from BC Partners in a $1.18 billion deal.
The second-largest transaction was the $875.9 million funding round of food distribution company Sunday Natural Products GmbH, with participation from CVC Capital Partners PLC.
Outlook
Miller anticipates modest positive growth in investments in consumer staples over the next 12 to 18 months. "We're going to be able to really discern which parts of the market are growing in staples and so money can move effectively to that. At the same time, I'm starting to see a closing the gap between buyers and sellers on their valuation expectations, kind of setting more realistic projections around those valuations," Miller said.
Meanwhile, Merrill notes that current US political and economic volatility is affecting global markets. "After the US election is over in 2025, the pent-up consumer demand, as those fears go away, is going to lead to a big spending spree."