Consumer megadeals make a rare comeback in the first quarter
* Sysco’s deal with Jetro Restaurant Depot and McCormick’s deal with Unilever’s food business were in the top 10 in the first quarter
* Ongoing deal talks in the spirits and beauty sectors signal further consolidation
* Dealmakers point to need for global scale amid volatility, changing consumer habits and family ownership dynamics
NEW YORK, April 3 (Reuters) – Two blockbuster mergers of U.S. food companies within 24 hours upset the rankings of the largest global transactions of the first quarter; This is a feat not seen in the consumer industry in over a decade.
Back-to-back announcements this week — Sysco’s $29 billion deal to buy Jetro Restaurant Depot and McCormick’s nearly $45 billion deal to buy London-listed Unilever’s food business — reflect a broad restructuring across the industry to respond to changing consumer tastes, rising tariffs and slowing growth.
Spice maker McCormick’s deal ranked second globally behind Amazon’s $50 billion investment in OpenAI in the first quarter, while food distributor Sysco ranked seventh; It’s the first time since 2015 that two U.S. consumer deals cracked the top 10 in the same quarter, according to LSEG data. Such rankings are dominated by deals in sectors such as technology and energy; Consumer companies are rarely successful.
The two consumer deals in 2015 were Coty’s acquisition of Procter & Gamble’s beauty business and the merger of three Coca-Cola bottlers, according to LSEG.
Consumer mega-deal making is not limited to food. Talks are underway between Jack Daniel’s maker Brown-Forman and France’s Pernod Ricard, and between beauty company Estée Lauder and Barcelona-based Puig for combinations that would create companies worth tens of billions of dollars.
“The dynamics around drinks are different than soft drinks, they’re different than food, they’re different than beauty,” said Jens Welter, Citi’s co-head of North American investment banking. “Most FMCG companies have come out of a period of high inflation which has been passed on to consumers which has impacted volume growth… So you are looking at alternative avenues for growth and that comes through consolidation.”
Mega deals across all sectors reached record levels in the first quarter, and many were cross-border. Becoming a more global company without overexposure to any one market provides protection in an increasingly unstable world, market participants said.
In this context, acquisition efforts for both McCormick and Sysco were a process that took years.
Unilever has been selling off its food assets for years, completing the spin-off of its ice cream unit in December, leaving Hellmann’s and Knorr as its biggest remaining food brands. When new CEO Fernando Fernandez started signaling a greater focus on beauty and wellness, McCormick took that as a sign that the food business was in place, a source familiar with the matter said.
In September, Fernandez told the Barclays consumer conference: “I have seven clear priorities: more beauty, more wellbeing, more personal care, more premium, more e-commerce, more US, more India… Beauty and personal care currently make up 51% of our revenue, and our goal is to make this two-thirds of our revenue in the medium term.”
Succession was the driving force at Jetro Restaurant Depot. Nathan Kirsh, the founder of the privately held family business, is in his 90s and his children do not run the business. Sysco CEO Kevin Hourican said in an interview with Reuters that they decided Sysco was the best place to carry the family business to future generations.
In particular, Brown-Forman, Pernod Ricard, Estée Lauder and Puig are also supported by the founding families.
“You have a market environment that is volatile and actually shows no signs of stabilization, so scale and diversification are incredibly critical,” said Jeannette Smits van Oyen, head of global consumer and retail investment banking at JPMorgan. “It is also no coincidence that in these times, these decisions have become more fundamental to family components in considering what their alternatives might look like.”
Any deal between Brown-Forman and Pernod Ricard or Estée Lauder and Puig would be at least partly defensive, analysts and sources familiar with the companies said. The spirits industry faces a sales slowdown and generational change as younger consumers drink less, while prestige beauty companies are under pressure to compete better with L’Oréal following its acquisition of Kering’s beauty division last year.
Mike Ross, PwC’s U.S. consumer markets deals leader, said consumer companies are under more pressure than ever to stay ahead of the tastes of rapidly changing generations. “There is a need to be much more agile and ready to adapt to these signals much faster than I think these companies have had to do before,” he said.
Overall, activity points to further deal momentum in the consumer industry for the remainder of the year.
“It will never happen until these deals happen, and then deals beget deals,” Smits van Oyen said. (Reporting by Abigail Summerville in New York, Editing by Echo Wang and Chris Reese)
