Cross-border M&A is an important way that Asia Pacific’s top 50 consumer product companies (CP 50) adopt to expedite growth, said Bain recently.
According to Bain & Company’s report Overseas Ambition: Asia-Pacific Consumer Products Companies Use M&A to Accelerate Growth, the Asia Pacific CP 50 increased overseas revenue three times faster than domestic revenue between 2012 and 2021.
- Overseas revenue compound annual growth rate (CAGR) was 9%, compared to only 3% CAGR for domestic revenue.
- In 2021, nine of the Asia Pacific CP 50 generated more than half of their total revenue offshore, and another 15 generated more than a quarter of their total revenue offshore.
- For Japanese CPs, overseas revenue has become a primary driver of top-line growth. Over the past decade, Japan-based CPs’ domestic revenue CAGR fell into negative territory (-4%), while overseas revenue increased at 6% CAGR.
- Ten out of the top 15 CP companies in Asia Pacific with the highest international revenue contribution in 2021 were Japan-based.
- China-based CPs experienced the fastest offshore growth with international revenue at 17% CAGR between 2012 and 2021. Domestic revenue grew at 7% CAGR during the same period.
- Elsewhere in the Asia Pacific, overseas revenue was a significant contributor to overall revenue—nearly equal to domestic revenue.
“Traditionally, Asia Pacific CPs have struggled to grow overseas. Brands developed for local audiences sometimes fail to resonate with overseas consumers and overseas expansion creates challenges and uncertainty that some organisations are not willing to navigate,” said Gino Dizon, a partner of Bain’s consumer products practice, based in Manila.
Cross-border M&A thus becomes the fastest way for Asia Pacific CPs to build business overseas, Dizon noted.
Asia Pacific CPs that pursued international growth through cross-border M&A earned more in overseas revenue than companies that expanded organically, Bain pointed out.
On average, those that pursued cross-border M&A increased their overseas revenue contribution by 27%, eight percentage points more than CPs that grew organically overseas, Bain said.
Among the Asia Pacific CP 50, 19 companies were international movers, according to the report.
Of those, 68% leveraged cross-border deals to grow international businesses, Bain noted.
“International M&A activity is still heating up among CPs. Activity dipped during the pandemic but quickly rebounded. Cross-border deals accounted for 43% of Asia Pacific CP deal volume in 2022. Before 2020, on average, a third of strategic deals were cross-border,” said Shanghai-based Philip Leung who is a leader of Bain’s Asia Pacific M&A practice.
Four ways to grow through M&A
Bain has identified the following four ways for CPs to grow through M&A.
- Scale in a new or subscale market by acquiring an established production or distribution network.
- Expand portfolios and add product segments to bring back to the current markets.
- Make an insurgent play and buy into small or young brands with high-growth potential.
- Expand capabilities up or down the value stream (or gain digital capabilities) to support the core business.
Of the 56 cross-border deals with deal value more than US$ 50 million between 2017 and 2022, acquiring scale in the target market was the most frequent cross-border deal objective (55%) followed by deals for portfolio expansion (25%), Bain observed.
“M&A is just one part of the story, the other is a seamless integration plan. In all cases, the acquisition objective becomes important because it affects the integration approach and how CPs derive value. Integration plans should always be tailored to the unique deal objective, recognising that each deal is different so approaches must be tailored,” said Leung.