Recent industry analysis has highlighted a number of complex and significant trends within the consumer goods sector. In a sector powered by names such as Nestlé, Pepsi and Unilever, research shows that R+D budgets are diminishing as a share of revenues, particularly in comparison with highly innovative sectors such as technology. This trend is coupled with the progress made by smaller, newer brands which are eating into the market share in a range of sectors.
From packaged consumer goods products as varied as yoghurt and coffee, newcomers are building brands and reaching new consumers faster than ever before. This points to a perfect storm for M&A activity. As larger operators become less focused on R+D spending, deals may offer the best route to accessing new consumers through newly acquired brands and their products. But outside of a potential impending boom in consumer goods M&A, what can this tell us about businesses from different sectors?
R+D vs. M&A: risk and reward
The temptation to reduce investment in research and development is borne out of a focus on the here and now, rather than the future. This approach is clearly a strategic error, put most simply by the mantra “innovate or die”. While R+D projects run the risk of failing in their objectives, stalling or simply not delivering the benefits intended, failing to adequately develop products or services now and in the future can compromise the future success or even existence of a company.
However, R+D is clearly not a silver bullet. Many companies are not in a position to run successful R+D programs, while the development of new products or services may be hindered by insular thinking. Companies are in a sense limited by their imaginations, so developing in-house may mean that the same limitations that exist in current products or services are built into newly-developed ones. As a result, M&A could well be a game changer for organisations, rather than a heavy emphasis on R+D.
Deals to be different
M&A is a complex process, demanding of time, energy and resources before any immediate benefits are delivered. However, just like successful R+D programs, M&A can unlock fantastic potential for a business to succeed in the future. Bolting on expertise can allow a business to boost existing operations with new talent and IP, while new and interesting synergies may be achieved by acquiring from outside of your sector.
Ultimately, a business with a strong strategy will look to secure its long-term success through a combination of tactics. M&A should be part of the conversation for any business which is in a strong position, whether complementary to, or taking precedence over, R+D activity.
Stay tuned to our blog for industry M&A analysis and remember to get in touch with our experienced team with any questions you have about the M&A process and how Benchmark International can help you.