Companies shift focus from cost reduction to mergers and acquisitions, with market poised for growthThough mergers and acquisitions activity slowed in the wake of the recession, companies are once again looking to expand amid a sustained economic recovery, according to KPMG's Rob Coble.

Businesses throughout the U.S. and elsewhere in the world were loath to acquire other firms in the aftermath of the worst economic contraction since the Great Depression. Many companies were able to weather the effects of the recession by focusing on business cost reduction campaigns and overhauling supply chain management and direct spend.

However, the U.S. labor market has continued to gain strength since the beginning of the year, and economic indicators are steadily growing more positive, bolstering business and consumer sentiment. Amid such a shift in outlook, companies are once again eyeing mergers and acquisitions as a means of expanding, with many aggressively pursuing growth through discounted buyouts.

According to Coble, who heads the consumer markets line of business for KPMG's transactions and restructuring segment, the mergers and acquisitions environment for consumer markets companies is poised for significant growth over the next two to three years. He said that although firms were able to improve profit margins over the past few years, they are increasingly looking to grow revenue as pressure mounts from shareholders.

"Consumer markets companies are motivated again by their expansion goals after hunkering down for the last two or three years to cut costs, remain profitable, and keep their stock prices up," Coble said. "Company leaders are looking for ways to create revenue growth and expand their customer base, leading to increased M&A."

Moreover, Coble contended the market would likely continue to improve over the next few years, driving companies to more aggressively chart growth. He said the hefty cash hoards many firms have accrued over the past five years, coupled with favorable debt markets and pent up demand for deals, would drive the M&A segment – even if the economic landscape shifts.

"We have a lot of companies confident about the deal market and the need to grow," he noted. "While they wait for more solid footing with the economy, they are being active in pursuing strategic acquisitions that complete a product line, add innovation, or expand to an emerging markets country."

Coble asserted a recent KPMG survey that polled finance executives of food and beverage companies found 41 percent of respondents affirmed mergers and acquisitions would have the most significant impact on overall revenue growth. Sixty-one percent of those surveyed also said they were targeting overseas growth over domestic markets, meaning M&A activity in the global landscape will likely benefit.

The global financial crisis prompted a marked shift in consumer sentiment, according to Coble. He said it caused many to scrutinize purchases more thoroughly, with shoppers increasingly focusing on the value of goods and services. As a result, Coble contended companies must continue to augment their product offerings to lure consumers, a feat more easily achieved through mergers and acquisitions than by expanding organically.

"Companies will have to offer new products or more products to deliver greater value at cheaper price points," he said.  "We think that more consumer market companies will have to consolidate in the future to provide their customer base with that value."

U.S. M&A activity has heated up since the beginning of the year. Just this week, UPS announced it had reached an agreement with Dutch company TNT Express in a move that will give the logistics and supply chain management giant a greater foothold in the European, Latin American and Asian markets. The technology and healthcare sectors are also poised to undergo a consolidation, experts say, as they work to bolster earnings amid scorching demand.

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