Reckitt Benckiser’s announcement to buy Mead Johnson for $16.6 billion in an all cash deal is the first, but probably not the last big acquisition announcement for the consumer healthcare industry in 2017. The outlook for both consumer packaged goods companies and the consumer healthcare industry includes continued global mergers, acquisition, and divestiture (MA&D) activity as companies fight to find growth, redefine themselves, and engage consumers.
Reckitt Benckiser is counting on a continued global increase in healthcare spending, specifically in the children’s nutrition sector. Rakesh Kapoor, Reckitt Benckiser’s chief executive officer expects the sector to grow between 3 and 5 percent, with drivers such as urbanization and women in the workforce. Clearly this acquisition will position Reckitt Benckiser to take advantage of this growth trend and help revitalize sales.
Mead Johnson’s brand power with their Enfamil products will help Reckitt Benckiser expand their consumer healthcare portfolio, adding an infant care component and creating a full line of family care items. Loyalty to family focused brands has been a key driver in recent multicultural marketing trends which we expect to continue in 2017 and beyond. The challenge will be creating a cohesive link within the brands and a compelling story to capture consumers’ attention in a crowded market.
Analysts are mixed in their reactions to this deal – some saying that Reckitt Benckiser has overpaid for the Mead Johnson business. However, the opportunity to experience a significant return is within reach if Reckitt Benkiser is able to deliver on their growth strategy. Additionally, with an acquisition this size the biggest challenge the company will face is in optimizing the business integration. A growth from acquisition strategy can be extremely beneficial for investors but the operational discipline required to successfully achieve expected returns is challenging for even the most adept companies and leaders.
To read more about trends in the consumer products industry this year, like increased mergers and acquisitions as a growth strategy, please review the Clarkston Consulting Consumer Products Outlook Paper for 2017.
Contributions from: Daniel O’Connor