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2010 was M&A year for fast moving consumer goods(FMCG)
December, 21st 2010

If there was one sector that saw furious action on the mergers and acquisitions (M&A) front this year, it was fast moving consumer goods (FMCG). Data from advisory firm Grant Thornton shows the growth in M&A deals this year was 16 times more in comparison to last year.

The total value of deals last year was $47.9 million. In 2008, the value of these deals was even lower, at $34 mn, so when compared with 2010, the growth is over 23 times, says Grant Thornton.

Compared to 2007, a boom year, the growth in value of transactions this year was 34 per cent, says Grant Thornton. The value of deals in 2007 was $596.6 mn versus $797.8 mn (Rs 3,630 crore) this year.

However, the growth in volume of deals was marginal this year over 2007, at 34 registered to 32 then. In contrast, 2009 saw 12 M&A deals and 2008 saw 10 deals.

There has, no doubt, been a rebound in activity levels this year. Companies which had postponed M&A activity in the past two years were clearly making up for the lost time, says Srividya C G, partner, advisory services, Grant Thornton.

A significant contributor to the growth registered this year were outbound deals domestic companies making acquisitions abroad. These were worth $506.9 mn vis-a-vis $45.5 mn registered in 2009 and $2 mn registered in 2008. In 2007, outbound deals were $266.9 mn.

Most mid-tier FMCG companies such as Dabur, Marico, Godrej Consumer and Emami were snapping up companies or brands this year to expand their sphere of activity.

GCPL did five outbound deals and one domestic deal this year, emerging as the most aggressive of the lot. Rivals Dabur and Marico were next in line with two outbound deals, respectively.

GCPL Chairman Adi Godrej says the acquisitions were in line with its global three-by-three strategy, to grow in the regions of Asia, Africa and Latin America in the areas of home care, personal wash and hair care. We have been following a very disciplined and focused approach to identifying acquisitions that represent a strong fit with our business, both strategically and operationally.

This was on display when the company quietly acquired Mumbai-based Priya Kothari groups Swastik and Genteel brands for under Rs 50 crore. Company watchers and analysts were caught by surprise when the company made the announcement earlier this month, indicating it could shift its attention from international deals to domestic deals if required. We are open to the prospect of more domestic acquisitions provided it makes strategic sense to do so, says Godrej.

GCPL and other home-grown majors had expressed interest in Ahmedabad-based Paras Pharmaceuticals, which finally went to Reckitt Benckiser. The Paras deal, at eight times sales and 30 times earnings before interest, tax, depreciation and amortisation, was unprecedented in an industry where deals are normally three to four times sales.

But the high valuation of local assets is what is driving homegrown companies abroad, say analysts. Sunil Duggal, CEO, Dabur Ltd, agrees as much. He says, Valuations abroad are not stretched, especially in the personal care space.

Daburs two outbound deals this year were in the personal care arena. Duggal says expanding abroad is a geographical hedge against the domestic market. The latter is increasingly getting competitive with the entry of new players, especially multinational companies. International markets contribute about 25 per cent to our turnover. This should grow over time.

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