By Maximilian Clarke

Companies in 2012 will increasingly be looking to join forces in order to better exploit economies of scale, driving merger and acquisition (M&A) activity in the UK, Deloitte figures show.

Portfolio rationalisation/non-core divestments (19%) and international expansion particularly into emerging markets (17%) were also ranked as key priorities. Economic uncertainty (33%) was felt to be the main obstacle to M&A activity for consumer product companies in the next 12 months; followed by price expectation gaps between buyers and sellers (26%) and shareholder/director caution (18%).

Conor Cahill, consumer M&A partner at Deloitte, comments: “The survey results closely reflect the issues we are advising our clients on in the market place. Market consolidation is set to be high on the agenda in 2012, with delivering cost efficiency through economies of scale being a key driver in the absence of significant current organic growth opportunities, particularly for those companies with a focus primarily on their domestic markets.

“The focus is slightly different for larger consumer product companies who are already generating a proportion of their revenues overseas, their search is for growth either entry into, or consolidation of, their position in higher growth markets.

“The report highlights that growth markets extend well beyond the much publicised BRIC markets as evidenced by Heineken’s brewery acquisitions in Ethiopia; Electrolux’s foray into Chile; as well as Turkish investments by both Diageo and SABMiller. We increasingly see other non-BRIC growth markets such as Mexico, Colombia, Vietnam, Indonesia, and Northern and Southern Africa, as offering attractive growth opportunities that consumer product companies are pursuing.

“Consumer product companies have been adept at managing costs and conserving cash, resulting in many corporates having strong balance sheets. Invariably, there are companies that are facing financial distress and we expect that some M&A activity in 2012 will be driven by their divestment of non-core brands, or even flagship brands, to reduce gearing. Despite the recent sluggishness in deal volumes, the underlying drivers for M&A in the consumer product sector remain strong.”

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