Strategic dealmaking runs hot in 1Q

Strategics drove most of the deal activity in the first quarter over private equity, according to a KPMG report on consumer and retail M&A trends.

Why it matters: The higher interest-rate environment and tighter financing market are driving PE’s pullback, KPMG partner Frank Petraglia tells Axios.

Driving the news: About 75% of deal volume came from strategics and those deals made up 91% of the values in the first quarter, according to KPMG.

What they’re saying: "The PE side sat on the sidelines a bit waiting for a bit more certainty around interest rates," Petraglia says.

• “That increasing interest rate environment continues to drive value gaps,” he says, and that’s “where the LBO model gets stressed a bit.”

Yes, but: As interest rates plateau, Petraglia believes private equity will return to the sector.

Zoom out: Deal activity continued to decline, with only 385 deals made in the first quarter, a drop of 35% over the previous quarter, per KPMG.

Zoom in: Many strategics are sitting on strong balance sheets, in part boosted by pandemic-era performance.

• As we emerged from the pandemic, “there were shifts in market share and in where the activity resided, both for consumer activity and M&A activity.”

State of play: The top strategic deals of the quarter include...

• Marlboro parent Altria’s $2.8 billion bid to buy e-cigarette maker NJOY Holdings
• Post Holding’s $1.2 billion acquisition of some pet food brands from J.M. Smucker
• French agribusiness InVivo subsidiary Maiteries Soufflet's $1.5 billion acquisition of commercial maltster United Malt Group.

Of note: Top private equity deals included Advent International’s acquisition of Kerry Group’s sweet ingredients portfolio.