According to the Grant Thornton Bharat Dealtracker Report Q2 2023, the retail and consumer sector deal activity declined by 43% over Q2 2022, with only 72 deals valued at USD 1.5 billion. The decline can be attributed to various factors, including an economic slowdown, rising inflation, and unseasonal rains which created a fluctuation in supply and demand.
Naveen Malpani, Partner and National Sector Leader- Consumer Industry said, "The M&A and PE landscape in India during the first half of 2023 reflects cautiousness and evolution in the mind of investors, with notable activities in some subsectors. Despite a challenging quarter, the Consumer sector anticipates a stronger recovery in the second half, driven by government investment in capex projects. Consumer durables faced challenges with a decline in sales due to untimely rainfall, while digital growth companies experience a lower than anticipated growth with a shift in valuations. The apparel sector plans aggressive discounting strategies to liquidate the inventory in the channel. Despite global concerns about recession and increasing interest rates, India's sustained focus on investment and infrastructure spending, presents opportunities for companies to navigate and capitalise on robust fundamentals.”
Mergers and Acquisitions (M&A) landscape: Despite high expectations of heightened M&A activity, the sector witnessed 45% drop in volumes and 39% drop in values over Q2 2023 on a year-on-year basis, at 12 deals worth USD 611 million. This also marked the lowest volumes in since the first quarter of 2021. For quarter under review, M&A activity saw high-value deals in the personal care and textiles, apparel, and accessories segments. Acquisition of Raymond Consumer Care Limited by Godrej Consumer Products Limited, and TCNS Clothing Company Ltd by Aditya Birla Fashion Retail Ltd marked an overall deal value of above USD 546 million.
Private Equity (PE) landscape: PE activity also exhibited a declining trend both in terms of deal volumes and values recording only 60 transactions, marking the lowest quarterly volumes since Q1 2021. Notably, PE investors have redirected their focus towards assessing corporate governance practices and robust business models of the companies.
Watertec India Pvt. Ltd received highest PE investment in the sector from Warburg Pincus at USD 132 million during the quarter.
- Direct-to-consumer (D2C) businesses are gaining traction by directly reaching customers through online platforms. Investors are recognising the disruptive potential of these companies, leading to increased funding and investor interest in D2C start-ups across various sectors. Lenskart alone received a funding of USD 600 million during the first half of 2023 followed by Freshtohome Foods with a PE investment of USD 104 million and Bluestone with USD 100 million.
- Consumer companies are increasingly relying on M&A to diversify revenue sources beyond traditional trading. This strategic shift allows retailers to pursue significant deals, positioning themselves as leaders in the market while capitalising on cost synergies. With companies like Aurum PropTech Ltd and Shobitam, Inc investing in NestAway Technologies Pvt Ltd and Artesano Lifestyle Pvt. Ltd, respectively, more than 50% companies invested expanding their portfolio in the first half of 2023.
- Inbound and outbound deals declined by 82% during H1 2023 on a yearly basis, on the back of inflationary pressure globally.