Personal care companies have been a rare hot spot in a sluggish year for consumer products mergers and acquisitions.

This story first appeared in the December 17, 2009 issue of WWD. Subscribe Today.

According to a study of M&A activity this year through October by Robert W. Baird & Co.’s investment banking department, the biggest consumer goods deal of 2009 so far has been The Stanley Works’ acquisition of The Black & Decker Corp. for $4.5 billion. However, the second, third and fourth largest were all in the personal care field, topped by Unilever’s $1.88 billion acquisition of Sara Lee’s personal care business and followed by Unilever’s $412 million takeover of Tigi. Energizer Holdings’ $275 million acquisition of S.C. Johnson’s Edge and Skintimate brands was the fourth largest middle-market deal.

The momentum in personal care M&As kept up this week as Alberto-Culver Co. on Monday agreed to buy Simple Health & Beauty, the U.K. skin care brand, for about $390 million.

The Baird study showed middle-market M&A deals — defined as those with a disclosed value of less than $1 billion — likely will hit an eight-year low, but signs of a revival are starting to pop up. Through the end of October, there were just 20 middle-market disclosed deals, compared with 50 in the first 10 months of 2008. Their value slid 31.4 percent to $8.13 billion from $11.85 billion, but their average size rose to $406.5 million from $237 million.

The numbers are for U.S.-based consumer product companies and do not include retail, apparel and restaurant deals, which are measured separately. Forty-four transactions for which the value wasn’t disclosed weren’t included in the tabulations, down from 100 such transactions in the comparable period last year.

Excluding undisclosed transactions, through all of 2008, there were a total of 54 middle-market deals worth a combined $11.96 billion. This made it the second-worst year of the decade after 2001, when $9.3 billion changed hands in 45 M&A transactions.

Although middle-market M&A action remains slow, interest is picking up as access to credit eases and companies that held onto cash during the worst of the recession look to put it to good use. Also, companies such as Kellwood Co. and Emerisque Brands have gone on the record about their pursuit of acquisitions in the apparel arena.

“The frequency and quality of conversations we’re having with [strategic buyers] looking at possible acquisition targets have greatly increased in the last six months,” said Joseph Pellegrini, managing director of Baird’s consumer retail team. “In the world we’re in today, where we’re not sure whether or not we’re out of the woods, there’s going to be a flight to quality — not to broken businesses that need to be fixed, but businesses that are holding their own, that have good franchises, that are making money even if they’re a bit bruised by the recession.”

The increase in the size of the average deal reflects evolving consumer behavior in difficult times. Reflecting on the acquisitions of brands such as Edge, in grooming, and the pursuit of the U.K.’s Cadbury by Kraft Foods Inc. in a hostile takeover, Pellegrini said: “None of these are superluxurious brands. But in tough times, people take care of themselves and they stick to basics,” such as food.

“It’s easier to get a deal done with a larger company,” he said. “In a recession, everyone is impacted in one way or the other, but a bigger company has more of an opportunity to cut costs. It’s another instance of the flight to quality.”

Recent shifts in currency, with the dollar weakening, also will affect the M&A market, he predicted, with strategic buyers far more important than financial suitors.