M&A in consumer goods space slows down in 2009: E&Y

M&A in consumer goods space slows down in 2009: E&Y

New Delhi: Tough economic environment in 2009 pulled down the number of deals—acquisitions and disposals—in the consumer goods sector in India compared to the previous two years. According to a new report by Ernst & Young Global Ltd—“Consumer Products Deals Quarterly"—that analyses acquisitions and disposals in the global consumer products sector, in 2009 18 deals were disclosed involving Indian companies, compared to 35 in 2008 and 51 in 2007. The last quarter of 2009 saw seven deals announced in India, of which three were cross-border. The most notable was Shree Renuka Sugars’ acquisition of Brazil-based sugar and ethanol manufacturer Vale do Ivai SA Açucar e Álcool for $81.6 million and Wipro Ltd’s acquisition of Yardley from the UK-based Lornamead Group for $45 million.

Globally, the BRIC countries offer a good opportunity for both cross-border and within-the-country deals as compared to the developed markets. Interestingly, China concluded more deals in 2009 than in any other emerging market. According to the report, majority of these (35 out of a total of 60 deals) were in-border. However, even the China market was depressed in terms of volume of deals which fell from 94 in 2007 to 71 in 2008.

In China, only 8 of the 60 deals were acquisitions by Chinese companies of foreign targets while 7 were sales to foreign buyers. In case of Brazil, 28 deals were disclosed. However, in case of all the emerging markets, the number of deals closed in 2009 dipped as compared to 2008.

The report stated that for Indian companies, the target markets included Africa, South Africa, Indonesia, Malaysia and the Middle East — where similar tastes and skin tones create a ready market for goods produced in India. “Such regions are a good strategic ?t, entry barriers are relatively low and there is less competition than in the US or Europe," the report added. For instance companies such as Dabur Ltd, Godrej Consumer Products Ltd and Marico Ltd are actively scouting to acquire companies in the personal and homecare space in these markets.

However, thanks to the buoyant domestic economy, healthy balance sheets of companies and a rising stock market, the current year looks good for India. “While deal volumes were depressed in 2009, there is a strong expectation that transactions will take off again in 2010," according to the report.

“There is certainly more interest from the private equity players to invest in consumer goods companies. Even the companies opertaing in the sector are becoming very active to acquire smaller or regional brand. So there will definitely be more action this year," Pinakiranjan Mishra, partner and national leader for retail at Ernst & Young India Pvt. Ltd. said.