Talk to the industry experts on M&A in the consumer goods and services sector and they’ll tell you that all the right ingredients are in place to build a strong deal pipeline. Plenty of would-be buyers have ready cash; financing is more accessible, and many companies are looking seriously at new markets as an important component of their overall growth strategy. So why is deal volume in this sector declining rather than growing?

According to mergermarket, global M&A in the first three quarters of 2012 totaled US$ 1,461.1bn, down by 17.4% on the same period in 2011. The US, with US$ 512.1bn worth of M&A deals announced in Q1-Q3 2012, saw a decrease of 18.6% on the same period in 2011 (US$ 628.8bn). In Europe, the first nine months declined to US$ 457.5bn, a decrease of 22.6% compared to the same period last year, and the lowest since Q1-Q3 2010 (US$ 399.9bn). In the Asia-Pacific region, M&A deals in 2012 fell to US$ 246.3bn, down 13.2% for the same period in 2011.1 What is causing the slowdown? At the most recent International M&A Advisor Summit in New York, a group of M&A experts assembled to share their insights into the most pressing challenges and opportunities impacting the consumer goods and services industry. The Symposium Session faculty members included: • René-Pierre Azria, [Moderator], CEO, Tegris Advisors • Ken Gerasimovich, Shareholder, Greenberg Traurig • Paul Melville, Principal, Grant Thornton • Howard Morgan, Co-President, Castle Harlan • Martin Franklin, Chairman, Jarden Corporation The panelists shared valuable observations regarding factors that are preventing deals from taking place and how firms are dealing with these challenges. They also provided a number of pragmatic recommendations for those looking to achieve successful growth in new markets. Topics covered include:

• Principal causes for the slowdown in deal volume • Challenges companies face when entering foreign markets • Foreign investment appetite for U.S. consumer goods and services companies • The pros and cons of joint venture agreements with foreign partners • A prediction of emerging market opportunities for consumer goods in the next few years.

René-Pierre Azria, CEO of Tegris Advisors and moderator of the panel, opened the session with a key macro M&A question of why, with so much money available in the market, both in the hands of large U.S. corporations and private capital funds, has M&A declined by double digits and what are the panel members doing to capitalize on the opportunities presented.

Deal Activity Still High Despite Lower Closure Rate

The answer, according to panelists could be summed up in a single word – uncertainty. The general lack of certainty over the U.S. economy is causing many investors to be more selective in their acquisitions.

Consumer Goods and Services

1 mergermarket M&A Round-up for Q1-Q3 2012, 10/3/12.

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Howard Morgan, co-president of private equity firm Castle Harlan, noted that his firm went through a period of two years in which it did not make an acquisition. That doesn’t mean the firm wasn’t looking at opportunities. “We were working very hard, but we were not willing to deviate from our investment strategy, and we’re not wiling to overpay,” he said.

Martin Franklin, chairman of Jarden Corporation, a multi-billion dollar consumer products company that has grown primarily through acquisition noted that his company is sitting on US$ 1 billion in cash. “We are reticent on spending in certain areas until we see more certainty in the economy,” he said. Franklin added that Jarden keeps its focus on targets that fit their investment strategy and performs extensive due diligence to ensure that a potential asset is truly a good fit. He also advises investors to avoid the trap of overpaying for an asset in today’s deal environment, where good assets are in high demand.

Avenues for Growth

How are consumer products companies positioning themselves for growth? With the U.S. market delivering few opportunities for growth, foreign markets are attractive, although panelists raised a number of issues for companies pursuing this strategy. All noted that it can be very difficult for a company to successfully introduce its products into other countries without the help of a local partner. For this reason joint ventures are a necessity, even though they can be difficult to manage.

According to Kenneth Gerasimovich, shareholder at law firm Greenberg Traurig, his firm’s clients doing business in markets like China are more successful when they choose to work with local partners. His advisors have recommended that companies going to China start out with a 50/50 joint venture and slowly grow their interest over time. Outright acquisitions are much more difficult to successfully execute. Gerasimovich added that the most successful firm are those that perform deep due diligence to ensure that they are choosing a good partner.

In the case of Jarden Corporation, the company tries to access new markets by making a foothold acquisition that will provide the company with access to bring its own products to market there. However, Franklin said, this can be difficult to achieve, and it takes a long-term, rather than a short-term view. “We just bought a US$ 70 million Brazilian company that specializes in the outdoor product space,” he said, “But it will be three years before we see an impact on revenue from the initiatives we are putting into place today.”

All of the panelists emphasized the importance of knowing the culture, market, government and operational norms of the foreign market before entering. “It is critical that the buyer have a clear understanding of accounting standards in a foreign market and be prepared to perform more financial and legal due diligence to ensure that the numbers are what they say they are, noted Paul Melville, principal at Grant Thornton. “The most successful companies are those, that take a strategic, rather than opportunistic approach,” he said, “They’ve also invested the time to clearly define company’s entrance strategy as well as their exit strategy well in advance of the acquisition.”

Foreign Market Opportunities

Howard Morgan, noting that he still views the U.S. as the largest and safest consumer products market, also identified Africa, China and other Southeast Asian countries as potential markets. For Jarden Corporation, opportunities are strongest in Europe, the U.S. and Brazil. Melville, while citing the U.S. as the largest market for consumer goods companies, also views China and India as huge consumer goods market opportunities.

Potential Investors in U.S. Consumer Goods Companies

Panelists expect to see an increase in foreign investment into U.S. consumer goods companies over the next five to ten years. One reason for this, noted Melville, is that investors will take the profits gained in the U.S. to fund growth in other markets. “One of their priorities, besides revenue growth will be identifying what they can take out of the U.S. and bring to their country,” he said.

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Franklin expects a continued increase of Asian consumer companies investing in American and European markets. Foreign investors will continue to sell the target companies designs and brands in the existing markets, but they will also expand sales into new investor’s home regions,” he said.

Gerasimovich concurs and stresses that the regulatory environment is relatively friendly in the United States, making it much easier for foreign investors to participate in the consumer goods sector. The Consumer Goods Market – Tough But Not Unbeatable

All caveats aside, the panelists cited numerous examples in which companies have identified good targets that have turned into solid performing investments. It may take more due diligence to uncover the gems, but these investors are definitely not taking their eyes off the market. Opportunities are out there for investors willing to maintain a disciplined investment strategy, combined with careful due diligence and a long-term view, in realizing investment returns.

Consumer Goods and Services

To View the Consumer Goods and Services Session Click on the Photo Below

To Watch Extended Interviews With The Faculty Members Click On The Photos Below

René-Pierre Azria, President & CEO, Tegris Advisors

Howard D. Morgan, Co-President, Castle Harlan

Martin E. Franklin, Executive Chairman, Jarden Corporation

Paul Melville, Principal, Grant Thornton

Kenneth A. Gerasimovich, Shareholder, Greenberg Traurig

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Howard D. Morgan is Co-President of Castle Harlan and joined the firm in 1996. He has been a Director and Executive Committee member of CHAMP Private Equity, an affiliate of Castle Harlan in Sydney, Australia since its inception and was Executive Director of CHAMP from 2000 to 2002. Previously, Mr. Morgan was a Partner at The Ropart Group, a private equity investment firm, where he was particularly instrumental in the acquisitions and growth of Blyth, Inc. and XTRA Corporation. Mr. Morgan began his career as an Associate at Allen & Company, Inc., working in mergers and acquisitions and private equity. He is a board member of CHAMP, Securus, IDQ, Pretium Packaging, Baker & Taylor and several other US, Australian and Asian companies.

FACULTY PROFILES

René-Pierre Azria founded Tegris Advisors LLC in September 2007 and serves as its President and Chief Executive Officer. Prior to founding Tegris, Mr. Azria was a Global Partner with Rothschild worldwide and headed the Telecom practice of Rothschild in the United States. Prior to joining Rothschild in 1996, Mr. Azria served as Managing Director of Blackstone Indosuez and President of Financière Indosuez Inc. in New York. Prior to joining Indosuez in New York in 1985, Mr. Azria started his banking career in Tokyo, Japan in 1981. During his 28 years in Corporate Finance in North America, Asia, and Europe, Mr. Azria has enjoyed extensive advisory experience, generally in transactions of large size and a high degree of complexity.

Paul Melville is a Principal at Grant Thornton LLP’s Corporate Advisory Services group, and is located in Chicago. Melville has over 15 years of experience in all areas of corporate restructuring, including several cross-border restructuring situations. He has advised stakeholders including bank groups, customers, suppliers and shareholders in a number of different restructuring scenarios, including company viability, reconstructions and debt restructuring, strategic options and formal insolvency. Mr. Melville’s experience is international in its foundation, where he was admitted to partnership in Grant Thornton UK where he was a partner in the corporate recovery and restructuring group.

Kenneth A. Gerasimovich is a Shareholder at Greenberg Traurig. He has broad experience representing domestic and multinational corporations and private equity funds in mergers, acquisitions and sales of public and private companies, divisions and assets. His practice includes a broad range of related corporate matters including tender and exchange offers, proxy contests, stock and asset acquisitions and divestitures, joint ventures, special committee representations, private investment in Public Equity (PiPEs) and other corporate transactions, as well as general corporate advisory work.

Martin E. Franklin is Executive Chairman at Jarden Corporation. Mr. Franklin was appointed to the Board of Directors on June 25, 2001 and served as Chairman and Chief Executive Officer from September 24, 2001 until June 13, 2011, at which time he began service as Executive Chairman. Mr. Franklin is also a principal and executive officer of a number of private investment entities. Mr. Franklin also served as the Chairman and/or Chief Executive Officer of three public companies, Benson Eyecare Corporation, Lumen Technologies, Inc and Bollé Inc. between 1992 and 2000. Mr. Franklin also serves as a Director of Promotora de Informaciones, S.A. and Justice Holdings Limited.

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Tegris Advisors is an advisory firm based in New York and active in M&A and re-equitization. Since it was launched in 2008, Tegris has advised on over $24 billion of large, complex transactions. In 2012, Tegris advised Justice Holdings Ltd. In its $8.1 billion total enterprise value merger with Burger King, which resulted in

reintroducing Burger King to the public markets on the NYSE. Tegris created an international advisory alliance which includes Aforge Finance (Paris), Bank Degroof (Brussels) and DVR Capital (Milan). Through this alliance, Tegris provides cross-border advisory services with teams based in the US, France, Belgium, Italy and Poland. To learn more visit www.tegrisadvisors.com

Greenberg Traurig, LLP, an international, full-service law firm with approximately 1800 attorneys serves clients from more than 30 offices in the United States, Latin America,

Europe and Asia. In the U.S., the firm has more offices than any other among the Top 10 on The National Law Journal’s 2011 NLJ 250. Comprised of more than 350 lawyers in more than 30 of our offices, Greenberg Traurig’s Corporate and Securities/M&A Practice is routinely chosen to handle critical M&A matters for companies and organizations. We help our clients structure, negotiate and consummate complex international and domestic sale of control transactions, strategic business combinations, and complex recapitalization transactions primarily for large and middle cap companies, and for unlisted, controlled and privately owned-busi-nesses. Greenberg Traurig’s practice groups and attorneys have been recognized as No. 1 in their respective geographic regions by The National Law Journal, Chambers & Partners, Corporate Board Member magazine, Latin Lawyer magazine and numerous other professional publications. To learn more visit www.gtlaw.com

The M&A Advisor was founded in 1998 to offer insights and intelligence on middle market activities. Over the past fifteen years we have established the world’s premier leadership organization of M&A, Turnaround and Finance professionals. Today, we have the privilege of presenting, recognizing the achievements of,

and facilitating connections between the industry’s top performers with a comprehensive range of services. To learn more The M&A Advisor visit www.maadvisor.com. To subscribe to future M&A Market Intel publications call 718 997 7900 or email info@maadvisor.com

Consumer Goods and Services

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