Despite a handful of headline-grabbing consumer products business transactions such as Mars Incorporated’s planned acquisition of Kellenova, PepsiCo’s acquisition of Poppi and Siete Foods, and The Hershey Company’s acquisition of LesserEvil popcorn, a broader expansion of middle market deal activity remains elusive.
Optimism for a boom in mergers and acquisitions based on the promise of a reduced regulatory environment and lower interest rates did not materialize and was further slowed by tariff uncertainty that suppressed investors’ appetite for deals. The continued uncertainty of tariff policies with major trading partners and continued elevated interest rates have forced investors to reevaluate deal participation.
Investors’ optimism of a less hands-on regulatory environment by the Federal Trade Commission has been clouded by concerns of softening economic data (most recently with the July jobs report), and the impact that current tariff policies could have on inflation and consumers’ ability to spend.
Recent developments have provided some clarity on tariffs, most notably from framework agreements with the European Union, Japan and Vietnam. Ongoing negotiations with Canada, Mexico and China are providing enough uncertainty for consumer products companies leading into the critical back-to-school and holiday seasons, especially those with overseas manufacturing.
While interest rate policy was expected to be clearer, investors awaiting lower interest rates will now be forced to wait until either September or December. In addition to interest rate uncertainty, there is growing concern that the consumer will be able to continue to drive growth and absorb price increases. But companies that cater to higher-income consumers, who account for the majority of spending, are likely to continue to garner investor interest as there is little evidence that those consumers have retrenched.
Opportunities expected to drive deal volumes
That being said, the robust M&A activity during and post-pandemic from 2020 to 2022 is starting to mature and we believe will be a catalyst in the second half of the year and into next that breaks open the levees and drives deal volumes higher. Investors waiting for improved performance may be forced to divest for lower than hoped returns as limited partners look for liquidity from aging portfolios.
We expect the same themes that have emerged over the last two years will remain, most notably the continued focus on add-on acquisitions. This trend has been driven by explosive growth within home services (home improvements and renovation, personal wellness and services) and consumer services (primarily wellness, medical and automotive) as Baby Boomers look to exit businesses started decades ago. Note, activity within this sector is not fully reflected in consumer products deal counts given inconsistency in reporting.
Corporate activity, which supported the deal market over the past 12 months, is expected to continue, most notably for large beauty and Big Food. With organic growth for many companies remaining stagnant, acquisitions provide the best opportunity for top line growth through the ability to quickly integrate new acquisitions, and more likely opportunity to divest non-core brands, such as Conagra Brands Inc.’s disposition of Chef Boyardee and General Mills’ yogurt business.
Another trend we expect to continue in this environment of uncertainty is the reliance on the use of earn-out provisions to help bridge valuation gaps and product buyers, and align interests post-close.
Food and beverage
Food and beverage companies continue to be challenged with elevated input costs (e.g., coffee beans and cocoa), which have been a consistent drag on earnings and could lead to the acquisition of smaller brands that would immediately benefit from purchasing scale.
In addition, companies within the space are struggling to grapple with shifting consumer purchasing habits driven by the impact that GLP-1 drugs are having on snacking habits. This is driving companies to focus on margin performance as there is evidence volume is being affected by lower propensity of consumers to snack. This shift has led to consumers shifting dollars to products that offer gut health and protein categories. Beverage companies continue to be attractive assets, anchored by Olipop’s minority raise, Pepsi’s acquisition of Poppi, and Celsius Energy Drink’s acquisition of Alani Nutrition, LLC.
One consideration not yet felt by food and beverage companies is the impact from cuts to the supplemental nutrition assistance program, or SNAP, benefits within the One Big Beautiful Bill Act. We expect this will drive further regional consolidation of grocers as they grapple with lower spending by certain consumer segments. This will only further enhance investor interest in private label products, as sustained pricing pressures appear to have permanently shifted consumer buying habits and less government assistance for grocery purchases will result in lower income consumers looking to stretch grocery budgets with shelf stable or lower cost products. We expect the attractiveness and activity of contract manufacturers and those with strong private label businesses to accelerate in this environment.
Consumer goods
Even as consumer goods activity rebounded in the second quarter of the year, overall consumer goods deal activity continued its sequential downward trajectory in the first half of the year. Pockets of activity emerged within beauty and personal care brands and long dormant categories, including furniture and home furnishings and larger apparel deals.
Large beauty and personal wellness brands that have long been on the sideline have emerged as active players, especially within the fragrance and hair care space as these companies look to attract younger shoppers, even as pressures from lagging international sales weigh on existing portfolios.
Price pressures remain an issue for lower-to-middle income consumers, and shifts in buying patterns toward discount shopping appear to be holding firm, evidenced by the pull forward of back-to-school shopping by consumers concerned with price increases from the impact of tariffs.
A concern for companies in this space is whether the significant purchases in the first quarter of the year to mitigate the impact that tariffs had on pricing will be a working capital drag on performance in the coming months. Investors will want to see companies’ ability to sell through products that were acquired prior to the implementation of tariffs or strategies to reduce higher inventory levels.
Additionally, companies will need to demonstrate to investors the ability to maintain profit levels with lower volume to garner interest. Retail bankruptcies and unit consolidations will put more pressure on companies’ ability to demonstrate sustainability within the wholesale channel.
In addition, the uncertainty of tariff policy will continue to impact this space, as many goods are sourced from international suppliers. This uncertainty will benefit companies that successfully transitioned supply chains post-pandemic and likely makes companies with locally made and sourced products more desirable.
Retail and restaurant
Following its rebound last year, the restaurant sector has experienced a slight year-over-year decline in M&A activity in the first half of the year, driven by persistent macroeconomic challenges such as inflation, tariffs uncertainty, rising labor costs and volatile capital markets.
Despite this slowdown, dealmaking is expected to accelerate into next year as regulatory clarity improves and cost pressures ease. The sector continues to navigate post-pandemic volatility with traffic showing signs of softening, and in some cases, a decline in the first half of this year compared to last year.
A major driver of this trend is that consumers are becoming increasingly price-sensitive due to continued inflation and a decline in household savings. This is causing many to cut back on dining out or seek more affordable options, and accordingly, we are observing a divergence in performance, with value-oriented chains generally outperforming premium dining restaurants, particularly in lower-income markets.
Franchise systems have shown resilience by leveraging scale to manage supply chain disruptions and support operators with pricing and labor strategies. Meanwhile, financial sponsors, particularly private equity firms, remain active, targeting scalable restaurant concepts with strong unit economics. Their growing involvement signals a broader middle market recovery and a renewed appetite for strategic investments.
Following the trend of the second half of last year, we observed a surge in franchise-related M&A, particularly in sectors like quick-service restaurants (QSRs), health and wellness, home services, youth enrichment and senior care.
These industries offer scalable models and recurring revenue streams that appeal to private equity and strategic buyers. Franchisors that can demonstrate their ability to scale quickly, prioritize franchisee relationships, embrace innovation and align with evolving consumer trends are well-positioned to capitalize on this favorable investment climate. Given valuations expectations, securing investors’ confidence in the company’s ability to ramp units to maturity and deliver on pipeline are paramount to success.
The first half of this year saw a decrease in M&A activity in the retail sector, driven by a combination of strategic, financial and macroeconomic factors, along with ongoing volatility. A key driver of the ongoing activity has been the cash stability of certain retail businesses, which enabled them to pursue acquisitions while discretionary segments faced pressure from shifting consumer sentiment. This has attracted activist investors and highly involved private equity sponsors that have operational expertise and experience to navigate the current environment.
Retail companies that align with trends such as digital transformation, supply chain optimization and corporate clarity are particularly well-positioned to attract investment and drive consolidation.
RSM contributors include: Doron Neuman, Kunal Bhatt, Mary Loera, Ryan Schloer and Tom Martin
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