M&A deals in FMCG space to accelerate in coming years, Rothschild & Co’s MD says

  • India’s market for packaged consumer goods is expected to reach $220 billion in 2025, up from the $167 billion in 2023. The size is expected to grow further to $192 billion by the end of 2024, according to a report by TeamLease Services released earlier this year.

Suneera Tandon
First Published10 Jul 2024, 08:08 PM IST
Post-covid, consumer goods makers have lapped up assets spanning spice makers, wellness brands as well as organic food companies.
Post-covid, consumer goods makers have lapped up assets spanning spice makers, wellness brands as well as organic food companies.

Mumbai: Deal-making activity in India's packaged consumer goods space is expected to accelerate over the next four-to-five years, but fewer potential targets will likely drive up valuations for such deals, Subhakanta Bal, managing director at financial advisory group Rothschild & Co, said.

He said that both domestic and multinational FMCG companies will look to buy out strong regional and national brands to build scale and diversify their offerings.

Deal activity is expected to be higher in the packaged foods space as more companies build a wider portfolio and gain ground in a market that remains under-penetrated, Bal told Mint, adding that domestic companies are likely to be more aggressive in snapping up regional local players as they try to build scale and size of business.

Read more: A half-hearted recipe to fix India’s consumption woes

“We do expect very strong outcomes on the strategic side (compared to private equity). That’s because if there is a corporate deal—private equity will obviously be a very formidable competitor. But if it is a brand deal, companies are better positioned to buy the asset compared to private equity.  Because they already have the distribution—all they are doing is plucking the brand out of this company and putting it into their distribution infrastructure,” he said.

Globally, Rothschild & Co works with consumer companies such as Nestlé and Diageo. Bal has been associated with Rothschild & Co since 2007 and is responsible for advising businesses on M&A, strategy, and financing, as well as investment in healthcare, pharma, life sciences, chemicals and consumer sectors.

Post-covid, consumer goods makers such as ITC Ltd, Dabur India, Hindustan Unilever Ltd and Tata Consumer Products have lapped up assets spanning spice makers, wellness brands as well as organic food companies.

In 2022, Dabur acquired a majority stake in spice maker Badshah Masala. Earlier this year, Tata Consumer Products Ltd spent 5,100 crore acquiring condiment and ready-to-cook food maker maker Capital Foods while separately paying 1,900 crore for wellness food company Organic India.

Read more: ‘India to see next set of IPO-bound firms in niche sectors from tier-II markets’

Mint earlier reported that private equity firms Blackstone, Temasek Holdings and Bain Capital are evaluating a controlling stake in Haldiram Snacks Food Pvt. Ltd. In the past three years alone, the consumer sector saw $2.61 billion being poured into deals—including private equity funding as well as acquisitions, according to data sourced from investment bank Avendus. Mint had earlier reported that several large FMCG companies, including Dabur India and Tata Consumer, continue to have strong appetite for acquisitions.

“Organically growing a brand is tough in India—from a gestation period point of view. So if you can buy something, which already has critical scale, and you can pump in much more of that through your distribution infrastructure it's only obviously going to be value-accretive,” he added.

India’s market for packaged consumer goods is expected to reach $220 billion in 2025, up from the $167 billion in 2023. The size is expected to grow further to $192 billion by the end of 2024, according to a report by TeamLease Services released earlier this year.

A large domestic consuming population trading up to packaged goods is a big draw for companies and investors alike. Categories are also highly under-penetrated because consumers across markets continue to buy unbranded or loose products. Companies are looking at the consumer goods sector from a very “long-term" lens, Bal added.

Bal said categories such as staples (packaged rice, wheat, flour), spices, condiments, packaged foods, ready-to-eat foods or tea will continue to attract investors. Deal activity in the home and personal care market, on the other hand, may be slow owing to fewer targets, he added.

Read more: FMCG firms will strategically boost ad spends as demand stabilizes

Both deal volume and value will continue to grow, he said. However, he warned that a lack of ample targets will likely drive up valuations.

Bal said domestic firms may buy smaller or regional players while international firms will chase companies with a national footprint indicating a greater appetite for acquisitions.

“The only thing that will happen is that if you are a sub-scale asset you will probably attract more domestic interest because for some of the global guys, they want something more sizeable or of scale. Overseas strategics who don't have as much heft or presence in India, for them the focus will be on chunkier deals. But if it's smaller deals, you will have interest from a lot of these domestic strategics,” he said.

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First Published:10 Jul 2024, 08:08 PM IST
HomeIndustryM&A deals in FMCG space to accelerate in coming years, Rothschild & Co’s MD says

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