In the last few years, several private equity (PE) and venture capital (VC) firms have invested in consumer packaged goods (CPG) companies. PE/VC investors have been riding a decade-long growth wave in transaction volumes, valuations and fundraising, however the current crisis has eroded some of the value of investments and dampened investor confidence. Consumer goods, household and consumer products as well as FMCG companies should see favour amongst PE/VC investors as high returns often emerge in times like these and can offset the losses during the downturn. There is also a massive amount of dry powder readily available at the investors’ disposal and CPG companies stand to benefit as COVID-19 has materially changed the outlook towards consumer goods essentials as a sector.
According to VCCEdge, notable deal activity in the FMCG sector was seen as Avenue Supermarts Ltd. (D-Mart) raised $4.86 million in February 2020 and Ador Multiproducts Ltd. raised $0.29 million in July 2020. The sector also saw another big ticket deal happening as Hindustan Unilever Ltd. acquired the Horlicks Brand for India for $415.3 million in April 2020. For the household and consumer products sector, the average deal value recorded in 2020 was $5.07 million as compared to $7.15 million in 2019, a drop of 29%. Honasa Consumer Pvt. Ltd. (Mamaearth) raised $18.22 million thus accounting for another notable deal in the sector in 2020.
“There has been deferment in the deals activity in 2020 as investors are waiting to see the extent of the damage that has been caused due to the pandemic, however there has been a lot of change in the preference amongst consumers. For the household and consumer products there has been an average of 2.3X increase of income among the online delivery platforms such as Milk basket, Big Basket, Swiggy & Zomato. Companies such as Milk basket rode on the sentiments of consumers and innovated their supply chain and business models where they were allowing people to place orders up to 10 PM with guaranteed delivery the next morning between 7-8 AM. This allowed for an increase in the total income for the platform by 2.8X. These numbers may certainly impress PE/VC investors looking at the sector as going forward customers are likely to prefer the online model over traditional models for convenience, social distancing & health above all else. This would result in a fundamental shift in the sector,” said Ruby Dobriyal, Manager – Research, VCCEdge.
Though the funding activity is expected to be hit and not recover in comparison to the earlier years for the latter part of 2020, due to unprecedented impact on economic activity caused by lockdowns and social distancing, VCCEdge reported a drop of 50% in terms of volume (2 deals in Q3 2020 as compared to 4 deals in Q3 2019) and 82% in terms of value ($5.15 Mn in Q3 2020 as compared to $28 Mn in Q3 2019) in the consumer goods sector. This drop is on account of the pandemic but once the market starts recovering it might unearth golden opportunities in the future for sectors such as consumer goods due to changing consumer preferences.
“The crisis caused by COVID-19 has changed the composition of consumption basket for consumers. There is an increased focus on food and essential products with the demands increasing two to three fold in the last four to five months. The pandemic has also forced consumers who were apprehensive earlier to shop online hence making online shopping a new normal,” said Shalil Gupta, Chief Business Officer, Mosaic Digital.
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