Private equity-led CPG M&A falls to lowest level in a decade

The total value of private equity-led consumer staples deals in H1 2022 is at its lowest level in at least 10 years, per PitchBook.

Why it matters: Consumer packaged goods investments have historically been seen as a recession-proof haven, but these results indicate a slower rush to the sector.

• Meanwhile, luxury retailers like Tom Ford and Gieves & Hawkes are weighing sale processes amid a growing luxury apparel market.
• The data also show a dramatic decline in activity in CPG activity from last year.
• Though not as dramatic, PitchBook's findings echo data from Refinitiv we published last month demonstrating a downturn in U.S. deals for consumer staples — though that included all activity, not just PE.

Of note: By contrast, U.S. retail M&A overall through the first half is up so far in 2022, Refinitiv reports.

State of play: CPG strategics like Mondelez are still making plays, as evidenced by the conglomerate's $2.9 billion acquisition of Clif Bar last month.

• Diversified players like Treehouse Foods are still banking on private equity — though Bloomberg's June report notes Treehouse's discussions with sponsor Investindustrial for its meal prep business could still fall apart.

The big picture: Global M&A during the first six months fell 21% year over year, as our colleague Dan Primack reported in late June.

• That includes a 28% decrease for U.S. targets, also citing Refinitiv.

Yes, but: After a record-shattering 2021, a slight pullback in dealmaking was expected.

What we're watching: In the second half, interest rate hikes and recession concerns are likely to put a damper on dealmaking, as a number of retail deals busted up.

• Inflation may have peaked and valuation multiples have come down, which may help soften the blow, but stable capital markets are key.

💭 Our thought bubble: Consumer spending and the jobs market are still robust despite inflation. But turbulent valuations and volatile capital markets — not to mention the debt markets, making any leveraged buyout a bigger reach for PE — have chilled M&A.

• As valuations stabilize, acquirers may go bargain hunting in the second half, especially for recession-friendly consumer staples businesses.