Consumer sector leads buyout recovery

John Bakie
05 January 2011

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Consumer-centric companies were a major focus for buyout investors in 2010, despite the sector's struggle during the recession years. John Bakie investigates

Unquote" research has revealed a substantial rebound in private equity investment in the consumer sector over the past twelve months. With buyout deal value up by over 300%, and a 33% increase in volumes, the sector is certainly far healthier than it was.

Figures from unquote" Research show consumer buyouts reached a total value of €19.9bn in 2010, well above the €4.3bn seen in 2009, though this is still far below the €61.4bn seen prior to the recession in 2007. The sector was also the largest in value terms for the first time since 2007, beating the €13.4bn invested in industrial firms. But why has this sector seen a significant recovery after struggling through 2008 and 09?

When the credit crunch arrived, consumer focused businesses were among the hardest hit. With consumers unable to unwilling to obtain credit - which many retailers had come to rely on - sales dived, and many of the most high-profile casualties of the recession were well known consumer brands.

However, the failure of some consumer businesses will have opened up opportunities for others to expand their market share and test out new products and services to suit the new economic environment. This, coupled with lower price expectations, may have made consumer businesses more attractive to investors. The recovery in finance availability should also be considered, particularly for some of the very large consumer buyouts seen in 2010, including Pets at Home and Picard Surgelés. With many of Europe's most attractive retailers also carrying significant price tags, improving leverage availability has likely increased the practicality of completing deals in the sector.

Financial services also saw a significant increase in buyout activity, with value returning to 2007 levels at €10.5bn and a 43% increase in value. Similarly to the consumer sector, financial services companies were severely affected by the downturn, and 2010 offered the opportunity to pick up assets as banks weighed down by debt sought to divest non-core divisions.

For an in-depth analysis of the European buyout market, look out for the 22nd edition of the European Buyout Review to be published in February 2011.