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M&A activity in food retail during the corona crisis
Jeroen Lustig published on May 7, 2020
The impact of the corona crisis on multiples, buyers & sellers attitude and food retail and suppliers explained.
EFMI & KPMG M&A Podcast
A panel of 5 market experts share their vision on the current economy and food companies regarding M&A activity developments (podcast link here).
René Aalberts shares his vision on the retail segment in the Dutch market
What do we see?
Low margins: Due to the ‘new’ circumstances, retailers are confronted with lower or stable selling prices, while all kinds of costs (e.g. operational and logistics) rise. There is a significant need for new solutions. Product portfolios, assets and business models are open for change. The online channel is more relevant than ever.
Rapid developments: to illustrate the impact of the crisis, how fast do we see change develop compared to before corona?
Business model changes: in 3 months, instead of 3 years.
Switch to online / multichannel: 7 weeks instead of 7 years.
GDP forecasts show a decline in all regions of the world, except for China. The country has a significant lead when it comes to integration of the online segment. Combined with consumption growth, this results in a GDP growth of 1.2% in 2020 (The Netherlands: -7.5%).
What will happen when everything turns back to normal?
So far consumer research confirms the pursue of the new trends and developments.
Onno Groeneveld and Bas Glas discuss the consequences for the M&A market
Can we compare the credit crisis with the current corona crisis?
The stock market has been hit quite severe. Compared to the credit crisis, we see stock prices drop more heavily due to panic, but these have returned to ‘credit crisis levels’. Volatility remains strong.
Multiples have shown an increase, while they dropped during the credit crisis. The current crisis will not have a similar impact on margins and cashflows of companies, but returning to 2019 levels can cost 1-3 years. Another difference: the current crisis has not impacted the ‘buyer side’ as much.
Uncertainty is reflected in two things: sellers take a ‘wait and see attitude’, and buyers cannot always receive desired financing from credit facilitators like banks. April 2020: 1/3 of normal M&A activity.
Jeroen Lustig and Kees Krikke discuss the impact on food
What are the circumstances that result in different impact and recovery of companies?
Survival of the fittest: Kees Krikke points out that differences in positioning, regarding products and markets are important. Multichannel options are a driver of quick recovery. ‘Broad’ subsidies are not supported by Kees, due to the fact that bad companies can receive good money’.
Balance sheet: how are companies financed? By debt or equity? Jeroen Lustig points out that companies that have invested and supported the economy in the last years are ‘punished’, while companies that have managed less proactively on core KPI’s like returns, experience a more comfortable position.
Discrimination: high leverage and investments in recent years can create a risk, but being a foodservice or out-of-home food supplier as well. This creates a certain discrimination regarding which companies experience the most significant impact on the business.
Concluding, the market, and therefore M&A activity will recover. The question is when, and in what form? What will the impact of changing business models and offerings do to consolidation? As long as the uncertainty remains high, companies will be less eager to sell and able to buy.
Read more about:
The current market situation here (Financieel Dagblad; June 24th, 2020)