Consumer Megadeals Make a Rare Comeback in the First Quarter

Record First-Quarter Megadeals Reshape the Global Consumer Sector

Major Mergers and Industry Shifts in the Consumer Sector

By Abigail Summerville

Blockbuster Deals Break Records

NEW YORK, April 3 (Reuters) - Two blockbuster mergers involving U.S. food companies, struck within 24 hours, gatecrashed the ranks of the biggest global transactions of the first quarter, a feat not seen in the consumer sector in over a decade.

The back-to-back announcements this week - Sysco's $29 billion agreement to buy Jetro Restaurant Depot and McCormick's nearly $45 billion deal to acquire London-listed Unilever's food business - reflect a broad reshaping across the industry to address shifting consumer tastes, rising tariffs, and slowing growth.

Ranking Among Global Transactions

Spice maker McCormick's deal ranked second globally in the first quarter behind Amazon's $50 billion investment in OpenAI, while food distributor Sysco's came in seventh - the first time two U.S. consumer deals cracked the top 10 in the same quarter since 2015, according to LSEG data. Such rankings are dominated by deals in sectors like technology and energy; consumer companies rarely break through.

The two consumer deals in 2015 were Coty's acquisition of Procter & Gamble's beauty business, and the merger of three Coca-Cola bottlers, according to LSEG.

Broader Trends in Consumer Megadeals

Consumer megadeal making is not limited to food. Talks are ongoing between Jack Daniel's maker Brown-Forman and France's Pernod Ricard, and between beauty company Estée Lauder and Barcelona-based Puig - combinations that would create companies worth tens of billions of dollars.

Industry Dynamics and Consolidation

"The dynamics around spirits are different from soft drinks, which are different from food, which are different from beauty," said Jens Welter, Citi's co-head of North America investment banking coverage. "A lot of the fast-moving consumer goods companies have come out of a period of high inflation that has been passed along to consumers that has impacted volume growth... So you're looking at alternative ways of growth, and that has been coming through consolidation."

Cross-Border Activity and Globalization

Megadeals across all sectors reached record highs in the first quarter, and several were cross-border. Becoming a more global company, without overexposure to any single market, offers a hedge in an increasingly volatile world, market participants said.

Against that backdrop, for both McCormick and Sysco, their acquisitions were years in the making.

Inside the McCormick and Sysco Deals

Unilever's Strategic Shift

Unilever had been selling off food assets for years, finishing the separation of its ice cream unit in December and leaving Hellmann's and Knorr as its largest remaining food brands. When new CEO Fernando Fernandez began signaling a sharper focus on beauty and wellness, McCormick took it as a sign that the food business was available, a source familiar with the matter said.

In September, Fernandez said at a Barclays consumer conference: "I have seven clear priorities: more beauty, more wellbeing, more personal care, more premium, more ecommerce, more U.S., more India ... Beauty and personal care now are 51% of our revenue and our ambition is to make it two thirds of our revenue in the mid-term."

Jetro Restaurant Depot's Succession Planning

At Jetro Restaurant Depot, succession was a driving force. The private, family-owned company's founder Nathan Kirsh is in his 90s and his children do not run the business. They decided Sysco was the best home for the family's business to carry it to the next generation, Sysco's CEO Kevin Hourican told Reuters in an interview.

Notably, Brown-Forman, Pernod Ricard, Estée Lauder and Puig are also backed by founding families. 

Market Environment and Family Influence

"You have a market environment that has been volatile and really shows no signs of stabilizing, so that scale and diversification are incredibly critical," said Jeannette Smits van Oyen, JPMorgan's global head of consumer and retail investment banking. "It's also no coincidence that in these times, these decisions become more fundamental for family constituents in evaluating what their alternatives could look like."

Defensive Strategies and Generational Shifts

Any deal between Brown-Forman and Pernod Ricard or between Estée Lauder and Puig would be at least partly defensive, analysts and sources familiar with the companies said. The spirits industry faces slowing sales and a generational shift as younger consumers drink less, while prestige beauty companies are under pressure to better compete with L'Oréal following its acquisition of Kering's beauty division last year.

Consumer companies are under more pressure now than ever to stay ahead of rapidly shifting generational tastes, said Mike Ross, PwC's U.S. consumer markets deals leader. "There's a need to be much more agile... and ready to adapt to those signals much faster than I think these companies have ever had to do before," he said.

Outlook for the Consumer Sector

Altogether, the activity points to more deal momentum in the consumer industry for the rest of the year.

"These deals are never going to happen until they happen, and then deals beget deals," Smits van Oyen said.

(Reporting by Abigail Summerville in New York, Editing by Echo Wang and Chris Reese)