On the heels of another post-recession record year in Consumer and Retail M&A, deal making will rise once again in 2017, accompanied by a rebound in valuations, according to A.T. Kearney's new report Off to New Peaks in Uncertain Times. In 2016, 58 megadeals were valued at more than $1 billion with consumer goods and food companies posting a 46 percent jump. The primary drivers of M&A—slow growth, consolidation, plentiful capital, and strong balance sheets—will remain in place, but the report predicts a rise in deal values and a more complex political environment for cross-border M&A.

Based on interviews with C-level retail executives, 67 percent of whom anticipate an increase in M&A activity, along with analysis of retail transactions from the past 10 years, the report outlines three predictions: stratification of deals with increased interest for both micro and mega deals; a bump in deals backed by private equity; and growth across global markets even in the face of rising nationalism and political uncertainty.

"While many of the circumstances that made 2016 a banner year for M&A will yield a similar level of deal making in 2017, several other factors have emerged that change the lens on the overall picture," says A.T. Kearney Partner Bob Haas, leader of the firm's global Mergers & Acquisitions Practice and co-author of the report. "Increasing pressure on companies to grow revenues and profits has been matched by emerging political uncertainty, which will make cross-border transactions far more complex and potentially not as favorable as domestic and repatriation deals. At the same time, high multiples in developed countries will bring more balance in global growth."

Several trends support this forecast. Consolidation and mega-megadeals such as 2016's Essilor–Luxottica and Walgreens–Rite Aid will remain crucial to improving bottom lines. Equally important, many small acquisitions will continue to drive innovation and new opportunities for growth as seen by the increased interest in Venture Capital investments. And while Europe and North America accounted for 75 percent of last year's total deal value, Europe attracted 45 percent of the total capital, reflecting the rise of the US dollar against the euro and the pound—a trend that is likely to continue.

"In 2016, valuations cooled, with multiples down 21 percent from the previous year," notes Bahige El-Rayes, A.T. Kearney principal and co-author of the report. "However, going forward, we see deal multiples springing back as a result of mounting global optimism, increased liquidity and the strong US dollar. To navigate the crosscurrents of shifts in market dynamics and political conditions, consumer and retail companies will need a strategic approach that accounts for the risk of economic nationalism in various parts of the world, starting with our own region, as well as a long-term view on the value created by M&A deals."