PARIS — It might feel like an exciting M&A scene these days, but it won’t necessarily last — consumer goods and retail deals are set to decline in value in 2020, according to Baker McKenzie’s “Global Transactions Forecast.”
Deals in the sector are expected to total $414 billion next year, compared with $518 billion in 2019, the law firm said in its fifth annual report, which was drawn up with Oxford Economics. Companies will likely start taking a more cautious approach to deals as Brexit in the U.K., the upcoming U.S. elections and ongoing global trade tensions cast uncertainty on a volatile geopolitical landscape.
“Aside from highly strategic acquisitions, next year may well be a bit of a wait-and-see moment,” noted Alyssa Auberger, global chair of Baker McKenzie’s consumer goods and retail group.
Auberger sees companies likely focusing on infrastructure, especially in the technology sphere.
“Acquisitions of tech companies may provide significant commercial competitive advantage to consumer companies who are not tech experts and do not have the ability nor time to create the technology they need organically,” said Auberger, citing block chain for traceability, artificial intelligence to help adjust production to consumer demand and data for customizing client experiences.
Auberger added she also expects companies to continue forging partnerships related to the secondhand market and the circular economy, citing cooperation between The RealReal and brands Stella McCartney and Burberry. Such deals can help labels draw the secondhand market into their own realm, which can be used to promote brand loyalty with consumers.
Auberger also flagged experiential trends as a potential catalyst for dealmaking, from luxury-branded hotels to in-store cafés for retailers.
While the total value of dealmaking is seen decreasing, funds generated by initial public offerings are also on the wane, forecast to generate $18 billion next year compared to $31 billion this year, according to the report.
“It’s volatility, volatility, volatility,” said Adam Farlow, a partner at the law firm who specializes in capital markets, noting that uncertainty weighs on IPO activity.
The sector’s trajectory is in line with global merger and acquisition activity, which is also projected to decline before picking up again in 2021.