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First quarter of 2025 (Q1â€�25) merger and acquisition (M&A) activity within the US consumer and retail (C&R) sector¹Ìýunfolded amid a complex economic backdrop.ÌýEconomic growth slipped into negative territory in the first quarter primarily due to an influx of imports ahead of expected price increases; this increased the trade deficit and dragged GDP lower. Increasing macroeconomic and financial market volatility were mainstays throughout the first quarter.

Many deals that were close to being signed are on hold or pushed out due to market turbulence; however, some companies moved ahead with strategic acquisitions to expand their product portfolios. Notably, this includes deals in the health and wellness and “better for youâ€� (BFY) categories, including Pepsi’s acquisition of Poppi and Celsius Holdingsâ€� acquisition of Alani Nutrition.ÌýFirms targeted acquisitions for brands and businesses meeting the heightened demand for BFY products.

Although digital transformation wasn’t a primary driver of M&A activity, it remains central to the broader operational strategy of many management teams, as companies seek to integrate digital and AI tools to drive operational efficiency, glean actionable insights, and refine omnichannel and customer experience capabilities—all with a focus on enhancing profitable growth.

This report examines M&A activity during Q1�25. We also present an outlook that explores how recent issues and developments could impact where C&R deals may move in the second quarter and throughout the rest of the year.

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¹ÌýThis report focuses on deals in which one or both parties are based in the United States.

Corporate deals that address long-term strategic goals will likely move forward with less sensitivity to the broader external factors at play.ÌýEconomic pressures could drive industry consolidation, with lower echelon performers becoming natural takeover targets for larger competitors with healthy balance sheets seeking to consolidate, gain market strength, or improve operational efficiencies. Likewise, consumer staples could become appealing targets for opportunistic buyers in a down economy, a trend we’ve seen in other periods of economic weakness. Additionally, joint ventures are a creative transaction structure that can be attractive to buyers (and sellers) and help bridge valuation gaps, allowing sellers to demonstrate their conviction in the business’s future while providing buyers with an attractive investment opportunity. And, if history is any guide, during recessions public market initial public offerings tend to favor C&R companies.

Meanwhile, distressed or soon-to-be distressed assets could become more attractive to private equity (PE) firms. Tariffs could disproportionately affect subsectors such as apparel, footwear, and luggage, pushing them into distress. To diversify risks or lock in returns, PE firms could turn to more structured investments, including taking minority shares with attractive conversions rights. This strategy may be particularly relevant in a volatile market, where the focus may be on internal portfolio company management and leveraging operating partners to enhance performance. The PE firms with greater focus on value creation during the hold period could find unique opportunities to capitalize upon.

In a competing scenario, intense market uncertainty and consumer trepidation could continue to restrain consumer spending and, ultimately, M&A activity. Although retail sales increased 1.4 percent in March, it appears to reflect a pretariff buying spree for autos and other goods.ÌýAccording to ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø LLP’s latest Consumer Pulse survey, 70 percent of respondents expect a recession to occur in the next year; 50 percent expect to purchase less overall due to tariffs. Moreover, the University of Michigan consumer sentiment dropped by 11 percent in April, marking the second-lowest reading since records began in 1952.

Companies across the board will need to focus on performance improvement, working capital efficiency, and optimized cash management strategies to weather the storm. Executives who remain agile and proactive, focusing on strategic objectives and resilient business models, will capitalize on the opportunities that will still arise in 2025.