For consumer products companies, deal activity expectations were high in 2025. Results were not.
Deal activity never found its footing last year, finishing at its lowest level since 2020 and well below market forecasts; however, sentiment is beginning to turn. As firms look ahead to 2026, we are seeing signs of re-engagement that could mark a pivot away from the caution that defined much of the past year.
Deal volumes were negatively impacted throughout 2025 by uncertainty around tariffs and other regulatory policies, weakening consumer purchasing power (as evidenced by continued lower retail sales in December), and indicators of a softening labor market. Despite several mega transactions, including Mars’ acquisition of Kellanova in December, the middle market mergers and acquisitions rebound remained out of reach.
Financial sponsors are expecting to capitalize on recent (and expected future) interest rate cuts through increased deal activity, following a year of cautiously navigating a higher interest rate environment. Meanwhile, strategics are reshaping their portfolios through strategic acquisitions and divestitures in response to slower growth, margin compression and activist shareholders, following a two-year slowdown in corporate M&A.
Moreover, the debt that funded the post-pandemic flurry of deals from late 2020 throughout 2022 is beginning to mature, which we believe will be another catalyst for both increased deal volumes and elevated refinancing activity. This will likely be the year where the hope for significantly improved performance is overtaken by the reality of the need to realize lower than hoped returns as limited partners look for liquidity from aging portfolios. Given these factors, we continue to see elevated execution risk, as buyers and sellers have difficulty aligning growth assumptions, which often result in increased reliance on pro forma adjustments and earn-outs driving an unbridgeable valuation gap.
We expect many themes from the last two years to remain into 2026, most notably a continued focus on add-on acquisitions. This trend has been driven 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. We are beginning to see investors shift dollars toward commercial businesses with higher barriers to entry and stickier customer bases. (Note: activity within this sector is not fully reflected in consumer products deal counts given inconsistency in reporting.)
We expect corporate activity to accelerate into 2026 as organic growth stagnates and strategic acquirers look to the deal market to plug gaps in portfolios.
The overriding theme to emerge in 2025, which we expect to continue in the coming years, is the continued breakup of Big Food. After more than a decade of consolidation of smaller brands that struggled to grow with shifting consumer tastes and trends, Big Food is starting to divest brands as they redefine core portfolios to align with changes in consumer behaviors with a higher emphasis on protein and clean ingredients.
While the recent announcement that Kraft Heinz will shelve its proposed split has tempered this trend, many other Big Food companies have taken steps to separate brand categories, either because of investor demands or shifting strategies. We expect this to shift focus from creating standalone entities, which brings its own related complications and execution risk, to more surgical structures that better enable well-placed buyers to more easily and confidently absorb these brands. Sellers that build confidence in a clear roadmap for operational and financial entanglements will perform better in this environment.
This emphasis will put renewed focus on post-acquisition strategies to drive value-creation opportunities and allow for sharper focus and faster decision making.
Food and beverage
The catalyst for anticipated deal activity in 2026 and beyond is the continued breakup of Big Food, driven by shifting consumer preferences, activist investors and stagnant organic growth. Additionally, pricing appears to have reached a ceiling with consumers and in some cases reversing, resulting in many food and beverage companies who continue to be challenged by elevated input costs to look for smaller brands in order to generate scale, or consider divesting brands more exposed to commodity fluctuations.
We expect the K-shaped economy to continue into 2026, as growth is realized across both high-end brands at premium prices and value or private label brands appeal to a wide variety of consumers. While the expansion of GLP-1 usage has driven a reduction in overall food consumption, consumers have reallocated wallet share toward higher-priced premium, better-for-you, or other products with enhanced health benefits, driving increased sales volumes and valuations for premium brands despite years of inflation. Non-alcoholic beverage deals continue to gain traction from this consumer subset.
At the same time, many food and beverage companies are capitalizing on cost-conscious consumers shifting toward value or private label brands in the wake of record inflation levels in recent years. Companies have expanded investment in private label brands, realigned product packaging to fit a variety of price points, and in many cases incentivizing consumers through promotions or more permanent price reductions. This environment will continue to benefit manufacturers of private label products and branded products that can demonstrate value.
Consumer goods
Perhaps no sector is more affected by the price sensitivity of lower-to-middle income consumers than consumer goods; as evidenced by the continued decline in deal activity in the second half of 2025, most significantly the fourth quarter which experienced the lowest number of closed deals in the past five years. The fears of tariffs on companies’ bottom lines were realized in the second half of last year, sharply impacting profitability as consumers were unwilling to absorb price increases, which was further amplified by elongated diligence processes as buyers waited for holiday sales figures.
The prospects of improved activity within beauty and personal care brands accelerated in the second half of the year with large beauty and wellness players actively looking to strengthen portfolios with influencer brands with larger and growing followings. Activity was sharpest in fragrance and haircare as companies look to attract younger shoppers, even as pressures from lagging international sales weigh on existing portfolios.
Within this environment, consumers continue to spend on pets, who remain beloved members of the family, creating resilience within this sector, particularly with the consumable segment. In addition, we’ve passed the peak performance of the sector following pandemic-driven trends, with many of these companies again beginning to demonstrate growth. We expect pet-related products activity to be a bright spot in 2026.
Additionally, companies within this space will need to demonstrate to investors the ability to maintain profit levels with lower volume in order to garner interest. Retail bankruptcies and unit consolidations will further put pressure on companies’ ability to demonstrate sustainability within the wholesale channel.
Further, the uncertainty of tariff policies 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
Despite improved activity in the restaurant sector in the second half of 2025, transaction activity remained muted, driven by persistent macroeconomic challenges such as inflation, tariff uncertainty, rising labor costs, and continued volatility in the capital markets. Despite this slowdown, dealmaking is expected to accelerate in 2026 as regulatory clarity improves and cost pressures ease or are offset by technology and operational improvements.
Consumer spending continued to be the primary catalyst of deal activity, particularly the lower- and middle-income customers who are more acutely impacted by price increases and overall cost-of-living concerns. This is causing many to cut back on dining out or seek more affordable options, and accordingly, resulting in most traffic finding its way to value-oriented chains.
Franchise systems have remained resilient, leveraging scale to mitigate supply chain disruptions, optimize procurement and support operators with pricing and labor strategies. This resiliency was notable in the second half of the year, especially as financial sponsors, particularly private equity firms, remain active, targeting scalable restaurant concepts with strong unit economics.
The uptick in franchise-related M&A continued during the second half of 2025, 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.
Within the retail sector, caution has persisted, with cash flow stability and balance sheet strength often dictating buyer interest. Smaller, omnichannel concepts that can integrate both physical and digital experiences continue to drive attention. The environment will continue to attract 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 in the near term.
RSM contributors include Doron Neuman, Kunal Bhatt, Ryan Schloer and Tom Martin.
For more, check out our outlooks for the following sectors: consumer goods, food and beverage, and retail and restaurant.
