The consumer sector saw over $2.5 billion worth of private equity funding and acquisitions in the last three years, data sourced from investment bank Avendus showed. The trend is likely to continue as large companies snap up smaller entities to enter newer categories.
“Even companies that have acquired in the last two years—none of them is saying that we are going to pause and integrate and then do more M&A. All of them, as we speak, are open to opening their wallets and acquiring more,” said Abha Agarwal, managing director, Avendus Capital.
Over an earnings call Wednesday, Sudhir Sitapati, managing director and CEO, Godrej Consumer Products Ltd (GCPL) said the company continues to look for opportunities in the health and beauty segment while building its core portfolio. Last year, GCPL acquired the fast moving consumer goods business of Raymond Consumer Care Ltd for ₹2,825 crore.
“Our number one priority is to master our existing categories. As and when we find genuine ways to solve a problem in health and beauty—our vision is to bring the focus on health and beauty in emerging markets. Particularly, in India, as and when we find opportunities in health and beauty we will evaluate it. Our thesis is based very much on developing categories that we are present in including liquid detergents,” Sitapati said.
Tata Consumer Products Ltd will continue to pursue opportunities as it builds a large fast moving consumer goods (FMCG) business in India and overseas, MD and CEO Sunil D’Souza, said, a day after acquiring Capital Foods for ₹5,100 crore and Organic India for ₹1,900 crore.
“Our big focus is India; the growth is in India, we aim to be a large player here, but the icing on the cake is if we acquire something in India and it has international legs, that would be a fantastic opportunity,” D’Souza said.
The covid pandemic pushed more consumers to buy branded foods and wellness products. The entry of direct-to-consumer brands has also prompted the likes of Hindustan Unilever Ltd and Marico to take note.
Companies chasing growth will buy into businesses that plug gaps in their portfolio, said Agarwal of Avendus.
“Each of them is sitting at high double-digit market shares in their core segments. All the M&As which have happened are largely to expand and get into a newer segment,” she said. Companies, she said, are sitting on a lot of capital and have existing distribution muscle, “so if some of these M&As can give you adjacent categories to grow in, it helps,” said Agarwal, who also co-heads the investment bank’s consumer, financial institutions group (FIG) & business services unit.
Dipanjan Basu, co-founder of Fireside Ventures, a venture capital (VC) firm that backs early-stage consumer startups, expects more M&As as consumer companies look to expand and build their product portfolio. “We will see more deals in the space of consumer health and wellness, Gen-Z focused brands in fashion and beauty led by innovation, regional foods brands building for packaged food for regional India and home,” Basu said.
Anand Ramanathan, partner, consumer products & retail sector leader, Deloitte India said acquisitions are a cheap way for companies to buy into innovation. “However, companies could be looking at more niche spaces, than just the mass categories. Companies will always be on the lookout for small brands which will help them position themselves in some small gaps that they identify,” he said.
“One of the key drivers for M&A for a buyer is to plug key gaps in their product portfolio. Even globally, bulk of the M&As for most indie brands has happened when they reach $50-$75 million in revenue,” Sakshi Chopra, Peak XV Partners’ managing director. “Indie brands start to become attractive acquisition targets when they get to the $50 million revenue mark, are profitable and are generating free cash flows. Acquirers view them value accretive to their overall business,” Chopra added.
In 2022, India’s largest consumer goods maker Hindustan Unilever acquired makers of Oziva and Wellbeing Nutrition health and wellness products in line with its “strategic priority” of entering fast-growing demand spaces.
FMCG company Dabur India will continue looking for strategic fits in healthcare, home and personal care and value-added foods, chief executive Mohit Malhotra said in an interview in August. “We’ve got ₹6,000 crore lying on our balance sheet; it’s meant for acquisition purposes. We keep scouting for strategic fits. That said, we have a guard rail of profitability. So, anything which is margin accretive to us is what we will acquire,” he added. In 2022, Dabur acquired a majority stake in spice maker Badshah Masala for ₹587.52 crore.
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Published: 04 Feb 2024, 11:07 PM IST