Will M&A turn up in 2012?

May 21, 2012

A KPMG-Wharton survey shows food and beverage executives expect corporate takeovers to resurge soon.

Consumers may not feel like they have much cash—but food and beverage companies do. And they’re about to spend some on mergers and acquisitions, according to a KPMG LLP-Knowledge@Wharton survey.

Citing pent-up demand for deals, the report pegs three primary drivers of this potential binge—corporate cash hordes, low interest rates, and the need to expand user bases and spark growth for Wall Street while a shaky economy hinders consumer spend. Opportunities in emerging markets will motivate deals.

Rob Coble, Consumer Markets Line of Business leader for Transactions and Restructuring at KPMG, expects the M&A market to “really take off” once the economy improves and consumers and CEOs are more confident:  “While they wait for more solid footing with the economy, they are being active in pursuing strategic acquisitions that complete a product line, add innovation, or expand to an emerging markets country.”

Nearly 7 out of 10 executive respondents feel their companies will make at least one acquisition in 2012, up from 57% who said this in 2011. The optimism over deals follows a year in which 762 deals were completed in the consumer products and services sector at an average value of $210 million.

What’s driving these deals? Three out of 10 (29%) say expanding geographic reach, 18% say entering new lines of business, and 17% say expanding the customer base, according to the report, Executives Show Guarded Optimism About M&A in the Year Ahead. The consumer products-food and beverage industry placed fifth out of 14 industry choices for anticipated overall M&A activity in 2012; retail came in ninth.

Between the uncertainties of an election year, economic pain in Europe, and persistently high unemployment in the United States, The Lempert Report sees possible delays in this M&A upsurge—not because companies don’t want the growth, but valuations might come down and acquirers could get better deals.