Consumer products deal activity slumped in 2025, far below expectations.
Key takeaways
Sentiment is turning for 2026 as rate cuts, maturing debt and strategic reshaping revive M&A.
Big Food divestitures and add-on acquisitions will accelerate as companies refocus portfolios.
For consumer products companies, deal activity expectations were high in 2025. Results were not.
Deal activity never found its footing last year, finishing at its lowest level since 2020 and well below market forecasts. However, sentiment is beginning to turn. With 2026 well underway, we see signs of reengagement that could mark a pivot away from the caution that defined much of the past year.
How can RSM help your business navigate a challenging business environment?
Deal volumes were negatively affected throughout 2025 by uncertainty around tariffs and other regulatory policies, weakened consumer purchasing power (as evidenced by continued lower retail sales in December), and indicators of a softening labor market. Despite several mega transactions, including Mars’ acquisition of Kellanova in December, a middle market mergers and acquisitions rebound remained out of reach.
Financial sponsors are expecting to capitalize on recent (and anticipated future) interest rate cuts through increased deal activity, following a year of cautiously navigating a higher interest rate environment. Meanwhile, strategic buyers and sellers are reshaping their portfolios through acquisitions and divestitures in response to slower growth, margin compression and shareholder pressure, following a slowdown in corporate M&A.
Moreover, the debt that funded the postpandemic flurry of deals from late 2020 through the end of 2022 is beginning to mature, which we believe will be another catalyst for both increased deal volumes and elevated refinancing activity. This will likely be the year when anticipation of improved performance gives way to realizing lower-than-hoped returns, as limited partners seek liquidity from aging portfolios. Given these factors, execution risk remains elevated, as misaligned growth assumptions may drive greater reliance on pro forma adjustments and earnouts, widening valuation gaps.
We expect many themes from recent years to continue into 2026, most notably a focus on add-on acquisitions. This trend has been driven by explosive growth within home services (home improvements and renovation; personal wellness and services) and consumer services (primarily wellness, medical and automotive) as baby boomers look to exit businesses started decades ago. Investors are starting to shift dollars toward commercial businesses with higher barriers to entry and stickier customer bases. (Note: Activity within these services sectors is not fully reflected in consumer products deal counts given inconsistency in reporting.)
We expect corporate activity to accelerate this year as organic growth stagnates and strategic acquirers look to the deal market to plug gaps in portfolios.
The overriding theme that emerged in 2025, which we expect will continue in the coming years, is the breakup of Big Food. After more than a decade consolidating smaller brands that struggled to grow with shifting consumer tastes and trends, Big Food companies are starting to divest brands as they redefine their core portfolios to align with growing consumer demand for protein and clean ingredients.
While the recent announcement that Kraft Heinz will shelve its proposed split has tempered this trend, investor demands or evolving strategies have prompted many other Big Food companies to separate their brand categories. We expect the focus to shift from creating stand-alone entities—a process that brings its own complications and execution risk—to adopting more surgical structures that enable well-placed buyers to more easily and confidently absorb these brands. Sellers that build confidence with a clear roadmap for addressing operational and financial entanglements will perform better in this environment.
This emphasis will put renewed focus on post-acquisition strategies that drive value-creation opportunities and allow for sharper focus and faster decision making.
Food and beverage
In addition to the breakup of Big Food, pricing appears to have hit a ceiling for consumers—and is in some cases being pressured downward—prompting many food and beverage companies facing elevated input costs to pursue smaller brands for scale or to divest brands more exposed to commodity fluctuations.
We expect the K-shaped economy to continue through 2026, with growth in high-end brands that command premium prices as well as value or private-label brands that appeal to a wide variety of consumers. While the expanded use of weight loss drugs has reduced overall food consumption, consumers have reallocated wallet share toward higher-priced products with enhanced health benefits, driving increased sales volumes and valuations for premium brands despite years of inflation. Nonalcoholic beverage deals continue to gain traction from this consumer subset.
At the same time, many food and beverage companies are capitalizing on cost-conscious consumers shifting toward value or private-label brands in the wake of record inflation levels in recent years. Companies have expanded investment in private-label brands, realigned product packaging to fit a variety of price points, and incentivized consumers through promotions or more permanent price reductions. This environment will continue to benefit manufacturers of private-label products and branded products that can demonstrate value.
Consumer goods
Perhaps no sector is more affected by the price sensitivity of lower-to-middle-income consumers than consumer goods, as evidenced by the continued decline in deal activity in the second half of 2025—most significantly in the fourth quarter, which saw the lowest number of closed deals in five years. Tariffs eroded bottom lines in the second half, sharply reducing profitability as consumers proved unwilling to absorb price increases. Deals were further hampered by protracted diligence periods as prospective buyers awaited holiday sales data.
Deal activity in beauty and personal care brands improved in the second half of the year, with large players looking to strengthen portfolios by targeting brands of influencers who have large and growing followings. Activity was highest in fragrance and hair care as companies sought to attract younger shoppers, even as pressures from lagging international sales weighed on existing portfolios.
Consumers continue spending on their beloved pets, creating resilience within this sector, particularly in the consumables segment. Though the sector has passed its pandemic-driven peak, many pet-focused companies are beginning to see renewed growth. We expect pet-related products activity to be a bright spot in 2026.
To garner investor interest, companies within this space will need to demonstrate the ability to maintain profit levels with lower volume. Retail bankruptcies and unit consolidations will put further pressure on companies’ ability to demonstrate sustainability within the wholesale channel.
Tariff uncertainty will continue to affect this space, as many goods are sourced from international suppliers. This uncertainty will benefit companies that transitioned supply chains postpandemic or that make or source products locally.
Retail and restaurant
Despite improved activity in the restaurant sector in the second half of 2025, transaction activity remained muted. Still, dealmaking is expected to accelerate in 2026 as regulatory clarity improves and cost pressures ease or are offset by technological and operational improvements.
Consumer spending continued to be the primary catalyst of deal activity, particularly spending by lower-to-middle-income customers, who are more acutely affected by price increases and overall cost-of-living concerns. With many of these consumers cutting back on dining out or seeking more affordable options, most traffic is finding its way to value-oriented chains.
Franchise systems have remained resilient, leveraging scale to mitigate supply chain disruptions, optimize procurement and support operators through pricing and labor strategies. This resilience was notable in the second half of the year, especially as financial sponsors, particularly private equity firms, targeted scalable restaurant concepts with strong unit economics.
Franchise-related M&A in the quick-service restaurant, health and wellness, home services, youth enrichment, and senior care sectors was particularly strong in the second half, as these sectors offer scalable models and recurring revenue streams that appeal to private equity and strategic buyers.
Within the retail sector, caution has persisted, with cash flow stability and balance sheet strength often dictating buyer interest. Smaller omnichannel concepts that can integrate both physical and digital experiences continue to drive attention. The environment will continue to attract activist investors and highly involved private equity sponsors that have the operational expertise and experience to navigate the current environment. Retail companies that align with trends such as digital transformation, supply chain optimization and corporate clarity are particularly well positioned to attract investment and drive consolidation in the near term.
RSM contributors include Doron Neuman, Kunal Bhatt, Ryan Schloer and Tom Martin.
For more, check out our outlooks for the following sectors: consumer goods, food and beverage, and retail and restaurant.
RSM contributors
Subscribe to RSM's economic insights
Timely economic analysis and trends to help middle market businesses succeed
More from The Real Economy
