Clifford Chance

CG&R companies vote for M&A in Europe

Two-fifths (41%) of consumer goods and retail (CG&R) sector respondents to Clifford Chance's European M&A: On the road to recovery? survey consider Europe to be a potential growth market that offers attractive M&A opportunities. Over a third (37%) of them say they should be in a position to undertake an M&A deal in Europe as a buyer in 2014.

Europe's highly developed infrastructure – a combination of logistics, broadband penetration (72% across Europe in 2012) and well-structured retail channels – is seen as making the region an attractive deal-making destination.

A third (33%) of CG&R respondents say that access to global brands makes Europe an attractive place to consider M&A. This is reflective of a trend where portfolios of well-known brands are being acquired as part of large transactions: for instance, China's Bright Food Group acquiring Weetabix from private equity group Lion Capital and Qatar's Mayhoola for Investments acquiring Valentino.

The survey, conducted by the Economist Intelligence Unit (EIU) on behalf of Clifford Chance, canvassed the views of senior executives at close to 400 large companies globally from a wide range of industries, including the CG&R sector. Over one-half of companies represented in the survey have annual revenues in excess of US$1 billion.

Within Europe, respondents consider the UK/Ireland (33%) and Southern Europe (26%) to offer the most attractive M&A opportunities. Recent retail insolvencies in the UK (Blockbuster, Comet, Game, HMV, Republic) have created unexpected opportunities and additional brand disposals have been announced, for example Lucozade and Ribena. Southern Europe's attraction stems partly from potential bargain-hunting opportunities – 30% of sector respondents think European assets are currently undervalued – but expectations for building value in the longer term remain relatively strong.

Over a quarter (29%) of sector respondents expect large European companies to be the most likely competitors for buying assets in Europe, ahead of private equity firms, sovereign wealth funds and companies from the US, China or Japan.

Commenting on the results of the survey from the sector's perspective, Clifford Chance's global head of CG&R, Catherine Astor-Veyres, said:

"It is clear from the survey that different European countries offer different opportunities for those operating in the CG&R sector. Whilst the UK and Southern Europe are considered to offer the most attractive M&A opportunities generally, France and Italy are the key markets for fashion and luxury brands, Germany is considered a market leader for technology and know-how, and Turkey's expanding retail and cosmetics sectors are attracting interest from the Middle East and Japan."

Based on the survey, the current growth strategy of the CG&R sector is to focus on organic growth (86%) and to push growth in core businesses (85%) and established markets (70%). There is also an increased focus on multi-channel retailing.

"Adapting to changing consumer behaviour is a major challenge facing the sector today. Increasingly, the key strategic goal of retailers is to achieve more effective integration of store, internet and mobile sales channels. The infrastructure in Europe lends itself well to this," said Astor-Veyres.