Unique M&A Opportunities for Consumer Products Companies in the Embattled (or Uncertain) Economy, Says a Report by The Boston Consulting Group
BCG's 2008 Consumer-Products Value Creators Report Calls for Integrating Business Strategy With Financial Policies and Investors' Priorities
BOSTON, MA--(Marketwire - October 16, 2008) - Financial markets are roiling, the business
environment is experiencing the first period of real price inflation in
consumer products in 30 years, and the full economic impact of rising
energy and other commodity prices remains unclear. What's more, many
companies are encountering a new class of global competitors from rapidly
Yet some conditions remain the same: most consumer-products companies
continue to generate more cash than necessary to support market growth
rates, and they must figure out the best way to deploy this cash for
maximum value creation. Actions taken now could reshape consumer markets
for decades to come -- because periods of economic slowdown are often good
times for companies to create value from mergers and acquisitions. But in
order to maintain strong performance in today's much tougher economic
environment, companies need to redesign their corporate-strategy process to
focus more explicitly on value creation.
The BCG Value Creators Series
This conclusion is the core finding of "Focusing Corporate Strategy on
Value Creation," the 2008 Consumer-Products Value Creators Report from The
Boston Consulting Group (BCG). The report shares BCG's insights about value
creation with clients in the consumer products industry and the broader
The report ranks the top consumer-products value creators based on a
detailed analysis of total shareholder return (TSR) at 171 global companies
for the five-year period from 2003 through 2007. The rankings also show TSR
performance for 2008, through September 9. In addition, the report breaks
down TSR performance by relevant managerial drivers, including top-line
growth, margin expansion, and cash flow contribution -- as well as the
impact of changes in the valuation multiple. It considers all
consumer-products companies with a market capitalization of $2 billion or
more at the end of 2007. Among the key findings:
-- The median annual TSR for the companies in the sample was a healthy 18
percent. Companies in the top quartile had a median annual TSR of 42
percent, and the median annual TSR for the top ten companies was 74
-- In order to achieve top-quartile status, companies needed to post an
average annual TSR of at least 31 percent. The very best performers had
truly stunning average returns ranging from roughly 70 percent to 140
percent per year.
-- The top ten companies, which ran the gamut from Chinese beverage
producers to French video game developers, grew faster than all of the
rest, generated higher margins, and created more margin improvement.
-- Many of the top performers were smaller companies, with market
capitalizations of less than $10 billion. The median annual return for the
top ten companies with market capitalizations between $2 billion and $10
billion was 73 percent, and the median for the top ten companies with
market capitalizations greater than $10 billion was 43 percent.
"The superior performance of small-cap companies should not be surprising,
since larger companies are more likely to 'fade' closer to the industry
average. Indeed, the challenge of sustaining outstanding performance is
more difficult as companies become larger," said coauthor Jeff Gell, a
partner in BCG's Chicago office.
Redefining Corporate Strategy
The key to generating superior shareholder value in the future, according
to the report, is to repair what it describes as a "pervasive disconnect"
between corporate strategy and value creation at many companies.
"Corporate strategy and value creation exist in a symbiotic relationship,"
said coauthor Daniel Stelter, a senior partner in BCG's Berlin office and
global leader of the firm's Corporate Development practice. "And yet the
necessary connection between the two is a critical missing link in many
companies' corporate-strategy process. Establishing that link doesn't
necessarily mean privileging shareholder value creation over all other
strategic goals -- let alone always maximizing shareholder value in the
short term. But it does mean understanding how a company's strategy
actually generates value and how capital markets monetize it."
The report introduces a broader and more comprehensive approach to
corporate strategy than companies typically employ today. In particular, it
supplements the traditional focus on business strategy with a new strategic
focus on a company's financial policies and its investors' priorities and
"Business strategy, financial strategy, and investor strategy ought to be
three equal parts of a company's corporate strategy and should be addressed
in a holistic fashion," said coauthor Eric Olsen, a senior partner in BCG's
Chicago office and the firm's global leader for value management. "An
integrated approach is necessary because decisions in each of these areas
can have a positive or negative impact on the others."
To receive a copy of the report or arrange an interview with one of the
authors, please contact Eric Gregoire at +1 617 850 3783 or
About The Boston Consulting Group
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