New York: Against the backdrop of a weakened economy, food and beverage executives, with cash on hand, intend to significantly increase merger and acquisition activity in an effort to grow their businesses, according to a recent survey by KPMG LLP, the US audit, tax and advisory services firm.
"Industry executives are telling us that they will step up merger and acquisition activity and that they have the cash to do so," says Patrick Dolan, KPMG's national line of business leader – consumer markets, and US sector leader – food, drink and consumer goods. "They will drive revenue, while dealing with pricing pressures, by focusing on retaining and adding new customers."
In the KPMG survey, 67 percent of food and beverage executives said it is likely their company will be involved in a merger or acquisition as a buyer or seller in the next two years. And, 62 percent said their organizations had significant cash on hand for strategic acquisitions and expansion into new markets.
According to KPMG's Dolan, while news reports indicate that companies are not investing excess cash on their balance sheets, the food & beverage execs indicate otherwise. Thirty-nine percent said that the cash will be deployed this year, and another 39 percent said in 2012.
Furthermore, 58 percent of the respondents indicated that their companies will increase capital spending over the next year, with half projecting increases of six percent or more, for acquisitions, new products and services, facility expansion and information technology.
While the executives eye growth, they do acknowledge significant hurdles. By far, the executives cited pricing pressures (54 percent) and volatile commodity/input prices (40 percent) as their most significant growth barriers in the next year, much more so than labor costs (25 percent) and lack of customer demand (20 percent).
According to KPMG's Dolan: "consumer leaders are facing continued pressure to improve working capital and optimize supply chains. But while they focus on improving operational processes and related technology and drive further cost reduction initiatives, organic growth will be the greatest focus for management in the next year."
To help drive growth, the executives recognize the importance of data analytics. Seventy-two percent of respondents in the KPMG survey regard customer data analytics as a core component of strategy and planning. "We can expect even greater attention here to allow companies to gain a competitive edge and to better adapt to changes in consumer behavior and interface with customers," Dolan adds.
According to the KPMG survey results, food & beverage executives are projecting the economy to moderately improve next year but are not projecting an economic turnaround for years.
Fifty-four percent expect the economy to improve next year, with 37 percent expecting similar conditions. When asked about the timing of a full recovery, 30 percent said by the end of next year, 35 percent said not until the end of 2013, and 32 percent said a recovery would not occur until the end of 2014.
According to the KPMG findings, most executives expect moderate improvements in revenue and hiring. A year from now, 61 percent of executives said revenue would be moderately higher, with just 7 percent expecting significantly higher revenue.
Regarding the outlook for headcount, 46 percent of executives said they plan to add personnel next year, but 38 percent are calling for an increase of less than six percent. As to when headcount will return to pre-recession levels, 27 percent indicate that it will be at that level by the end of the year. However, 14 percent said by the end of 2012, and 13 percent by the end of 2013, and 23 percent by the end of 2014 or later. Interestingly, 19 percent never expect hiring to return to pre-recession levels.