Acquisitions of companies and brands – FMCG Sector

Published on India Infoline on 5th May, 2006.

“Growth is Life” is not just a punch line of Reliance, but it’s what every business/ sector/ company strives for. And FMCG sector/ companies are no exception to this.

The sector saw a slump between ’02 and ’04 but has made a quick recovery. We have seen a transformation in the percentage growth of FMCG sector from single to double digit growth. This definitely shows us signs of good times. Let me give you some statistics.

According to latest HSBC Report (ET – March 10, 2006), FMCG is projected to grow by over 60 per cent till 2010
Total size of the FMCG sector will rise from around Rs 56,500 crore in ’05 to Rs 92,100 crore in ’10.

What is running this sector in the past few years? There exist only two growth paths– Organic (Innovation) or Inorganic.

We have seen FMCG behemoths like Proctor & Gamble to be proponent of organic growth. Recently (April 27, 2006), global CEO of Proctor & Gamble AG Lafley said “Organic growth is more valuable because it comes from your core competencies. Organic growth exercises your innovation muscle. It is a muscle. If you use it, it gets stronger.”

On the other hand, in 2005 Dabur India announced the acquisition of Balsara Hygeine and Home Care businesses. The CEO, Sunil Duggal mentioned that Balsara's acquisition is certainly not the last one and there may be more strategic takeovers in future. And now after one year, I see a new article in economic times on April 26, 2006 – “Dabur India eyes acquisitions”.

So after briefly hearing the different viewpoints from the CEOs of FMCG majors, can there be a unique strategy for FMCG companies to grow. Obviously, the answer is No. But in recent past we have seen a skewed trend towards acquisition of companies and brands by FMCG companies and opting for the inorganic route. In this paper I will give reasons with several case studies to why these companies are following this path.

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