It’s no secret that large Consumer Goods companies are searching for the growth formula that works. As smaller brands—many with a digital bent—show double-digit growth, incumbents try to regain their luster in the eyes of consumers.
In addition, scale no longer provides the advantage it used to give large companies. Digital technologies allow competitors of all sizes to virtualize the value chain, bypassing the barriers many smaller firms used to encounter as they tried to scale. Add to that equation the recent spate of massive buyouts with aggressive margin plays and you have established Consumer Goods players attempting to rapidly right the ship.
The Consumer Goods industry is not alone. Digital technologies have disrupted industries across the board. But in the Consumer Goods industry particularly, we see large companies increasing their M&A activity for digital reasons. Mainly, they are trying to buy digital capabilities to leapfrog other large competitors. Of the most active companies across industries (those that have completed five or more deals in the past two years), more than half of their deals were related to acquiring digital capabilities.1 The Holy Grail comes in the form of the insights, disruptive business models and better value chains digital provides. Building those capabilities solo would take Consumer Goods companies too far from their core mission, not to mention taking longer than is wise.
Buying and partnering take off
While the reasons for Consumer Goods acquisitions vary, Accenture Strategy research shows that acquiring new capabilities (47 percent) and the need for next-gen technologies (35 percent) are on par with traditional triggers such as expanding into new industries (43 percent) or geographic markets (37 percent).2 That said, digital deals are still a small portion of total deals, around 15%. But, they are rapidly gaining share (more than five points over just a few years).3
Not all Consumer Goods companies are buying, though. Some are partnering to take advantage of digital capabilities. For example, a company offering augmented reality (AR) for beauty brands has partnered with a larger Consumer Goods company so consumers can visualize face enhancements. Another tech-based company provides a large Consumer Goods manufacturer with digital vision tools to observe activity in stores around its products.
M&A strategy with a digital lens
To win in this changed environment, Consumer Goods companies need to do a few things right when crafting an M&A process for the digital world.
M&A has always been an exciting space, but it is particularly so for Consumer Goods companies now. While it has always been important to get your M&A strategy right, now that task needs to be done in a compressed timeframe or key opportunities will be snapped up by competitors. With more than one-fourth of Consumer Goods acquirers describing themselves as a traditional company acquiring a digital company,4 there is no time to lose.