In a previous post, we discussed the rise of M&A activity in the meat and dairy sector as consumer tastes change and concern for the environment becomes more widespread.
Industry experts believe that this trend, namely of ethical brands driving M&A, is much broader than the food and beverage space. Beauty, clothing and apparel and other consumer brands focusing on natural and sustainable products are also driving M&A activity. As the 2019 year end rapidly approaches, a reflection on some of these larger trends may shed some light on what may come in 2020.
Beauty and cosmetics
- The research and development costs of creating effective all-natural products are high and existing organic beauty brands have the advantage of being first-to-market. For this reason, many large cosmetic companies are looking to acquire existing businesses that have captured market share in the space, rather than developing their own products to compete.
- While consumer desire for natural products is certainly a factor spurring M&A activity, companies are also making strategic acquisitions to develop new and innovative products. A number of natural beauty brands are expected to start releasing alternative cannabis products, such as creams and topicals, once these products become legal in Canada later this month. This innovation in the beauty space has the potential to spur M&A activity not only by providing larger beauty companies with the ideal entry point into the cannabis space, but it may also create new synergies between cosmetic and cannabis companies.
Clothing and Apparel
- A recent report states that in the past two years, the number of sustainable apparel products available to consumers have increased by an astounding 139% and vegan products available have increased by 116%. Some of these numbers are attributable to new companies and products. However, certain existing brands are also switching to sustainable fabrics for their clothing.
- Technological innovation may have huge potential for driving M&A in this space. Sustainable clothing companies are developing the technology to make fabrics from materials like vegetable-tanned and pineapple leathers, alpaca wool, non-violent silk and other materials. Large retailers may look to these companies for strategic acquisitions and partnerships as the demand for sustainable clothing increases.
As ethical consumerism becomes more mainstream, one might expect to see more strategic acquisitions of all-natural beauty and clothing companies and/or the acquisition of technology companies that make the creation of sustainable products more profitable.
While meat and dairy alternatives have been responsible for a significant amount of M&A activity, we will be watching with interest to see whether ethical consumerism will continue to drive M&A the consumer product space, and the type of trends that emerge as ethical brands mature.
The author would like to thank Tegan Raco, articling student, for her assistance in preparing this blog post.
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