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Blog > May 2017 > Unlocking Value and Growth Through Superior Acquisition Strategy and Demand Due Diligence
5/18/2017 12:32:49 PM
By Jamil Satchu

 
 

Across the food and beverage industry, large CPGs have been consistently losing volume share to small and midsize companies that have been targeting consumers by leveraging on-trend demand growth pockets. This has caused concern and keen interest on behalf of large strategic investors (i.e., manufacturers) as well as financial investors keen to access these demand pockets. The race is on to secure on-trend assets through acquisition or innovation, but the process shouldn’t be attempted without having completed rigorous strategic and performance analysis and due diligence.

Trends Offering Pockets of Growth

As the U.S. consumer population shifts and millennials become the largest spending group, growth pockets are developing that reflect the changing lifestyles and values of key consumers. Eight trends IRI has identified that can help companies grow are: eating mini-meals throughout the day, activating healthier lifestyles, consuming protein-based diets, enabling convenience and portability, indulging in certain categories, shifting retail execution, buying fresh and local, and exploring multicultural and flavor options.

To Acquire or Not?

The challenge for manufacturers and CPG strategic investors is deciding whether to build and innovate or acquire in order to access growth. Increasingly, CPG manufacturers are acquiring smaller companies in high-growth sectors. There are two reasons for this: the first is that they don’t believe their legacy brands translate to the categories or growth pockets identified earlier. There is also an issue of time due to them wanting to rapidly access new brands coupled with an inflow of capital from private equity investors which raises the competition for these assets. This has caused many strategic investors to be pushed toward acquisition versus a build or innovation decision.

Key Acquisition Challenges

As more acquisitions take place, there are certain challenges that arise when working with smaller companies that are driving demand pocket growth. Those challenges include:

  • Untested Long-Term Performance: High-growth demand pockets and companies in those demand pockets have a limited track record
  • Sustainability: Although the growth may be attractive today, it’s unclear whether it will be sustainable.
  • Scalability: A key concern for large manufacturers is whether current pockets of growth that reside in smaller channels, such as natural or gourmet, are scalable across mainstream channels.

A key challenge for strategic and financial investors is to de-risk the acquisition decision by understanding the “performance context” of the category or pocket of demand, and the performance positioning of the potential acquisition target. CPG manufacturers and investors also need to determine the size of the prize and whether there is a potential growth opportunity and where it will come from. It is critical to conduct such diligence from both a granular and strategic perspective using the right data and insights from experts that have deep acquisition and growth experience in the CPG industry.

There is no doubt that there are multiple opportunities out there. The question is, are they the right ones for your company?


Click here to read our latest paper on this topic or contact me at Jamil.Satchu@IRIworldwide.com to learn how IRI can help you assess whether a potential CPG company or brand is a good investment for growth.

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