In this article, Max ODEN (ESSEC Business School, Bachelor’s in Business Administration, 2021-25) shares his professional experience as an analyst intern working in the Leveraged Finance division at Haitong Bank in the Paris office.

For those aspiring to work in Investment Banking but perhaps unsure which division which could perhaps suit you, this post provides a brief overview into what Leveraged Finance is and what goes on during a deal, using a leveraged loan transaction as an example.

Haitong Bank

Haitong Bank is a Lisbon-based investment bank whose roots can be traced back to China. The ultimate owner of the bank is Haitong Securities, one of the largest security houses in China who, in 2014, purchased the investment bank arm of Banco Espirito Santo – a Portuguese bank which was then rebranded to Haitong Bank. The bank has offices in major financial hubs in many continents in cities such as London, Paris, Macau, and Sao Paulo, where it offers services including Debt Capital Markets (DCM), Equity Capial Markets (ECM), asset management (AM), amongst others.

Haitong Logo

Source: Company Website

The Paris office opened in early 2023 and has a relatively small team working across mainly the Leveraged Finance, Structured Finance, and M&A divisions. The small size of the office means that you are immediately involved in transactions across the aforementioned divisions, and this was one the largest advantages of the 9-month internship I had, that I gained a high level of exposure to transactions. I got to experience things across different divisions but the vast majority of my time was spent in leveraged finance, working on deals spanning industries from healthcare to real estate development to consumables.

A Brief Introduction to Leveraged Finance

Simply put, Leveraged Finance, colloquially known as LevFin, involves providing debt capital to companies with an existing high-level of leverage and sub-investment-grade credit ratings to support operations such as leveraged buyouts (LBOs), mergers and acquisitions (M&A), debt refinancing, and recapitalisation efforts. Within an investment bank, the Leveraged Finance team partners with both corporations and private equity (PE) firms to raise this capital by syndicating loans and underwriting high-yield bond issuances. In this article, I will primarily discuss leveraged loans as this was the focus of my internship.

Private Equity (PE) firms are notably large players within LevFin, and later on in this article, I will provide a brief insight into how a transaction is structured based upon a deal which we participated in during my internship for which I was the analyst. PE firms, when raising capital to fund the acquisition of a new company for their portfolio, tend to use a combination of equity and debt (as do many other classic corporations), in which they will tend to use a higher level of debt relative to equity as this increase the PE firm’s Internal Rate of Return (IRR). Without going into too much detail, this is because the less equity (cash) which a PE firm contributes to an acquisition, the higher the return on the cash-investment made.

Investment-grade vs. Speculative-grade Debt

Investment-grade and speculative-grade debt are the two broad classifications given to companies based upon their credit worthiness, as assessed by rating companies such as Standard & Poor’s (S&P), Moody’s and Fitch. These ratings reflect the likelihood that the issuer will meet its debt obligations. Note that each rating agency has slightly different notation form to classify a company’s credit worthiness, but in this article, we will refer exclusively to S&P’s rating format.

Investment-grade debt refers to bonds or loans issued by entities that are considered low to moderate risk. These entities are expected to reliably meet their debt obligations, making them more attractive to risk-averse investors. Such ratings are often provided to mature, financially healthy companies such as Alphabet Inc. which has an AA credit rating from S&P.

On the other hand, speculative-grade debt often referred to as high-yield or junk debt, includes bonds or loans issued by entities that carry a higher risk of default. These are considered non-investment grade and are rated BB+ or lower by S&P. These bonds and loans offer higher yields to compensate investors for the increased risk of non-payment. Birkenstock, despite being a globally recognised brand carries a BB+ rating from S&P, which makes it a speculative-grade company.

The table below shows the broader classification of Investment-grade vs. Speculative-grade, and as you can see, these classifications can be broken down further with the lowest Investment-grade rating being BBB-. When a credit rating is given to a company, the rating agency will also provide an outlook of the rating: ‘Positive’, ‘Neutral’, or ‘Negative’, which logically refers to the likely evolution of the credit rating per the rating agency’s forecast for the company.

Default Rates: Investment- vs. Speculative-grade Debt.

Source: Standard & Poor’s (S&P), Moody’s and Fitch

The graph below shows the global default rates for Investment-grade and Speculative-grade companies, which clearly portrays the additional risk involves when investing into a company with the latter classification.

Default Rates: Investment- vs. Speculative-grade Debt.

Source: S&P.

Further Interpretation of Credit Ratings

Credit ratings are a telling metric before beginning a thorough analysis of a potential transaction, providing an insight into certain key metrics which are vital when interested lenders are evaluating the investment opportunity. As one would expect, as credit ratings become worse, we see a higher level of Net Leverage (Net Debt/EBITDA), lower Interest Coverage Ratio (EBIT/Interest Payments).

The methodology of these credit ratings is not, however, merely a look at a company’s financial health; the rating agencies take a holistic approach, exploring all areas of a company, encompassing quantitative and qualitative factors. Although detailed credit rating reports are proprietary data provided by these agencies, concise reports can be publicly accessed such as this report on the credit rating of Birkenstock from June 2024.

In the context of leveraged finance, logically, the better the credit rating of a company, the lower the interest rate they can borrow at. This simply comes back to the idea that the company is less likely to fall into bankruptcy, meaning that the lenders are taking a lower risk and will settle for a lower level of interest.

Leveraged Loans: What are they and key characteristics

As was alluded to earlier, we will be discussing primarily leveraged loans, as this was the debt instrument most relevant to my internship experience.

Leveraged loans are structured for institutional investors and syndicated broadly to lenders, including commercial banks, collateralized loan obligation (CLO) vehicles, hedge funds, pension funds, and insurance companies.

Most leveraged loans are senior secured instruments, meaning they are backed by the borrower’s assets and hold a first line claim in the capital structure. In the event of a default or bankruptcy, holders of these loans are first in line to be repaid from the liquidation of assets, ahead of subordinated debt and equity holders. This structural seniority tends to lower the expected loss in default scenarios. Capital structure and order of claims is vital for investors of junk and distressed debt, and I have included further readings at the end of this article which goes into further detail.

Key Characteristics of Leveraged Loans

• Secured: As mentioned, most leveraged loans are secured, often in the first or second lien, by assets owned by the company.
• Floating Interest Rates: This is very common for leveraged loans. The interest paid on the loan is typically tied to a benchmark reference rate such as the EURIBOR 3M in Europe, plus a credit spread of a certain level e.g. 450bps. Note that this benchmark is normally floored at 0%, meaning that regardless of the actual reference rate, it will not be lower than 0 for the transaction in question.
• Covenants: More restrictive due to the riskier nature of the debt. For clarity, covenants are clauses in the final agreement between the lender and the borrower which states certain aspects which the borrower must adhere to. This can include maximum Net Leverage ratios or limiting the ability to acquire other companies or participate in other activities. The limit is known as a basket; the dollar amount that a company may spend on specified activities, simply to minimise the chance that the borrower defaults.
• Amortisation and Maturity: This is not necessarily a feature exclusive to leveraged loans, but generally speaking, the principal amount of the loan is normally amortised over the tenor of the loan which tends to be in the range of 4-8 years, although this can vary slightly. Loans whose principal is repaid in one lump sum payment are known as having a bullet repayment profile. Furthermore, although not common, early repayment is normally allowed, granted that lenders receive a so-called repayment premium.

Players in a Leveraged Loan Transaction

Before going through the transaction process, it can be easy to get lost in who’s who and their role. Therefore, bullet pointed below are some of the key players who together facilitate the completion of a transaction:

• Borrower (Corporate or Portfolio Company). Typically a Speculative-grade company or a PE-sponsored portfolio company that is seeking to raise debt in order to achieve a certain goal e.g. fund acquisitions, refinance existing debt, or recapitalise the balance sheet. They will work together with the arranger to determine the structure, pricing, and timeline of the transaction whilst providing financial and operational data for due diligence and syndication.
• Private Equity firm (if applicable). In the case of an LBO, for example, they are the leading force behind a transaction which involves the acquisition of a portfolio company. They will aim to maximise their IRR by leveraging the capital structure with high amounts of debt, whilst coordinating with the arranger to secure favourable terms and negotiate loan covenants.
• Arranger/Lead Arranger/Mandated Leader Arranger. Works with the borrower to structure and underwrite the deal whilst advising on the loan size, maturity, interest margins, covenants, and any other aspect of the deal which is relevant. Oftentimes, they will also provide a bridge commitment or full underwriting prior to syndication, thus bearing the majority of the underwriting risk for which they will be rewarded with the largest portion of fees. Beside this, they will also prepare marketing materials which are provided to investors during the syndication including the Information Memorandum and the Lender’s Presentation.
• Bookrunner. This role can also be carried out by arrangers of a transaction, hence a specified bookrunner isn’t always present in a transaction. Their role is to manage the syndication process of the deal including investor outreach and roadshows, whilst also arranging Q&A sessions between borrowers and lenders. Finally, they also maintain the order book of the transaction, also leading the pricing and allocation of debt.
• Syndicate of Lenders. This group of investors can compromise of a variety of different players including banks, hedge funds, asset managers, and other institutional buyers. As investors, they will evaluate the transaction and decide whether to make an investment.

Transaction Process of Leveraged Loans: A Step-by-Step Overview Breakdown

A leveraged finance transaction can be a long process, with copious amounts of analysis required by front-office LevFin teams to ensure that the everyone involved in the process, predominately the potential lenders, have the complete image of the potential borrower and are able to evaluate the transaction to lead a successful execution of the deal.

We have created a bite-sized summary below of how a transaction tends to be structured, followed by a short case study in which I was in the LevFin team who were investors in the syndication of a deal, not the arrangers – the role often associated with leveraged finance divisions at investment banks. Not all LevFin divisions play the role of investors, many banks only structure and syndicate a transaction, but at Haitong this is not the case.

Origination and Identifying Opportunities

The transaction process begins with origination, where investment banks or financial institutions identify potential leveraged finance deals with their clients. Origination typically involves private equity firms, corporations, and advisory teams assessing market conditions, financing needs, and potential acquisition targets. During this stage, the parties will explore the strategic goals of the transaction, such as financing an LBO, acquisition, or debt refinancing. This step of the process is normally led by the arranger.

Structuring the Debt

The next step involves the arranger structuring the debt to determine the optimal mix of loan and bond financing. Key decisions include the selection of the debt instruments (i.e., senior loans, subordinated debt, or high-yield bonds) and the terms and conditions that will govern these instruments, which are found in a term sheet. The structure is typically designed to align with the cash flow capabilities of the borrower while balancing the need for high returns for the lenders and investors. It is crucial to design the structure so that it is financially sustainable over time, without overburdening the company with debt.

Underwriting

This is an extension of the previous step in which a more detailed plan of the debt structure is organised by the arranger. Underwriting is a critical step where the investment bank assumes the responsibility for issuing the debt. During underwriting, the bank will assess the creditworthiness of the borrower, including detailed analysis of the company’s financials, industry, and cash flow projections. The pricing of the debt is also determined, which reflects the risk premium for the borrower’s credit quality. A higher-risk borrower will face higher interest rates and more stringent terms to compensate for the increased risk of default, as we have previously explored.

Syndication – Spreading risk across multiple lenders

In leveraged finance transactions, especially those with large debt amounts, syndication is a common practice. Syndication allows a group of lenders to provide portions of the loan, spreading the risk and reducing individual exposure. Typically, a lead bank (arranger or bookrunner) will organise the syndicate, and the transaction will be marketed to other banks and institutional investors. This process helps ensure that the transaction is fully subscribed and that the risk is distributed across multiple participants. During this phase, significant discussion is held between interested investors in which they can also negotiate certain covenants of the loan with the arranging bank.

Case Study: From the Perspective of an Investor

To give a bit more of an insight, I will describe the process which I participated in on the buyside of leveraged loan transaction whilst providing useful tips to avoid mistakes that I made during my first stint in LevFin. It is worth nothing that whilst every firm has slightly different internal procedures, after having spoken to other industry professionals, a similar structure is common. I’ve chosen to describe the buyside because if you are working in a traditional LevFin division, you are ultimately trying to sell a product; the debt, and gaining an insight into how a buyer acts can help to understand what they are looking for.

With regards to the transaction, sensitive information cannot be disclosed, but it involved the financing of a PE firm’s majority-stake acquisition of a high-end global consumer goods brand, in which circa half of the overall transaction value, in the nine-figure range, was funded via debt with the remaining being equity provided by the acquirer.

Invitation

Last year, we were contacted by the arranging bank of the transaction, and we were invited to participate in the syndication of a leveraged loan including a Revolving Credit Facility (RCF), the former of which’s primary purpose was to finance the acquisition of a majority-stake in the target company. The RCF was for General Corporate Purposes.

Once the invitation was accepted, the legal department of Haitong signed a Non-Disclosure Agreement (NDA), and we received all of the material which would allow us and any other potential investor to evaluate the feasibility of the deal. This included the Info Memo, Lender’s Presentation, financial statements of the target company, financial forecasts of the target company, indicative term sheet, and all due diligence, of which the latter constituted of around 3,000 pages of vendor due diligence, financial due diligence, tax due diligence, legal due diligence amongst others.

Initial Analysis on Feasibility of Transaction Participation

The first step when receiving all this material, at least when following the procedure during my internship, is creating a model which creates an estimate for the Return on Investment (ROI). The reason for this is that according to internal policies, we need to have a weighted-average ROI above a certain threshold when investing in debt securities, and should the ROI not be compatible, then we cannot move ahead with the transaction. It would be redundant to complete a full analysis of the transaction, only to realise after that it is not feasible.

Building this model is a fairly straight-forward task once familiar with the mechanics of the model. It relied on various inputs of which the most notable were a) the margin of the loan b) the tenor of the loan c) the credit rating of the borrower. However, the borrower of the transaction, also the target company of the acquirer, was a private company and did not have a credit rating provided by any rating agency, thus I had to make a credit assessment of the borrower.

At Haitong, we used the S&P Methodology when constructing these ratings, and as you will recall from earlier, this entails conducting a thorough analysis on the quantitative and qualitative factors of the company. Quantitative inputs when creating a credit assessment report are largely historical – looking at the past financial performance of the company, whereas the qualitative inputs are more forward-looking, examining factors relating to market risk, for example, which could hinder future growth. In this instance, I had plenty of due diligence material which helped me to evaluate all the metrics which together helped provide a final credit rating, which indicated that the borrower was highly rated within the speculative-grade classification, circa BB.

The initial ROI calculation on this transaction indicated a 14% return, a rather significant figure given the initial credit rating, surpassing our internal requirements, thus we could proceed to complete the first stage of our internal processes, known as ‘pre-screening’. This is a circa 10-minute presentation in which the front office staff such as myself have to present an overview of a proposed transaction to senior decision makers at the bank, often involving senior managing directors, with the goal to gain initial approval to move onto the next stage of the process. It is worth mentioning, that such a transaction, like any other, has a buyer and seller (in this case the debt). Therefore, at this stage, there can exist an opportunity to negotiate the terms of the debt, if you deem that the loan has been priced too conservatively i.e., that the interest margin is too low for the level of risk involved.

Preparation of Pre-Screening Presentation

For about two weeks, I would sift through countless documents extracting the most important aspects of the transaction and the borrower, so that when I presented this information to the senior members, I would clearly be able to describe the proposed deal including its purpose, security (collateral) put up amongst other aspects. In addition, I would have the answers to any question they could ask me whether it be about the covenants of the term sheet, the borrower’s supply chain or their growth strategies. However, given the early stage, this presentation, as indicated by the name, is merely a screening of the transaction and in-depth analysis is not yet required.

When looking at such a transaction, whilst it is good to know the reasons why this transaction can be beneficial to the bank, it is even more important to understand the risks involved, ranging from market risk to business risk.

If there was one thing that I would like you to take away, it would be to not underestimate the importance of the term sheet/senior facilities agreement. This is a document which lays out all the terms and conditions of a loan, almost like rulebook which the borrower and lender must abide by. Simply put, you are providing tens of millions of euros to a company, and this document will spell out your rights, and seek to contain the risk involved in a transaction. Understanding such a document is not easy, they are extremely long and written in legal jargon, but in doing so you understand how your risk is being minimised through what is spelled out in the term sheet/senior facilities agreement and provides you with an understanding as to what happens in case of default by the borrower and how you can make claims to make up for monetary losses – a worst case scenario.

The challenge in presenting a transaction is that you have to be as thorough as you can whilst keeping it as concise as possible. It is easy to focus on unimportant aspects, wasting valuable time to convince your audience/decision-makers to support your case. Equally, however, after having spent 2 weeks gathering information non-stop, it can be easy to forget that your audience have no context as to what you’re speaking about, and you must make every point abundantly clear.

I think that anyone who has worked in investment banking can share a similar sentiment that bankers are impatient, and I count myself as part of that group; they want as much information in as little time as possible, and if you can’t communicate effectively, you will struggle to succeed. I have been on both sides of this but as an example, prior to this transaction, I had failed to do so, and I did not gain approval to move ahead with the transaction despite its strong fundamentals.

In the end, after answering a few questions from the senior bankers pertaining to the pro-forma structure after closing of the acquisition and the supply chain risk, we gained approval to move forward to present in front of the Executive Committee (ExCo), a 20-minute presentation with a Q&A session thereafter. At this point, you are presenting in front of the most senior bankers in the firm including the CEO.

Preparing for the ExCo

This is by far the most challenging part of a transaction from a buyside perspective. You, as a front office employee, are coordinating with several departments internally at the bank such as portfolio management and risk, as well as the arranging bank to request more information which you require to conduct a full analysis. Alongside doing so, you are ensuring the constant progress of the transaction, knowing that there are commitment deadlines after which point you will not be allowed to invest into the transaction.

The key is to keep organised, and that applies to everything.

You will have hundreds of documents related to one particular transaction being sent around from different departments, ranging from legal compliance certificates to intricate financial models. Therefore, I urge you that from the start, before even having reached this point, that you create neatly organised desktop folders, special Outlook folders – this will save the team time and avoid miscommunications and costly time delays. Even seemingly less important things such as formatting conventions when building financial models in Excel will minimise errors and spare you hours of time looking for a singular source of circularity across 20 tabs late at night.

For example, during this transaction, a modified financial model which had originally been provided by the arranging bank was sent to the risk department from a front office member, not the original as thought. When this was made apparent when the risk analyst presented their findings after a weeks’ worth of work, it almost caused us to miss the commitment deadline. Fortunately, the ramifications weren’t significant, but an addition of a singular row in the original Excel could have costed us this transaction, highlighting the importance of being organised and having extreme attention to detail.

With regards to the tasks involved in this stage, it is an extension of the first phase before presenting for the Pre-Screening, the difference being that this time you go into much more detail. You are expected to understand all of the risks involved in this transaction, and you are expected to have incorporated these risks into quantifiable figures which are modelled in Excel through a forecast looking circa 5 years ahead. Therefore, being not only proficient in using Excel, but being able to create integrated forecasts for particularly the Income Statement and Cash Flow Statement, is vital, particularly if you want to set yourself apart from others in an industry which is already extremely competitive.

These scenario and sensitivity analyses are typically derived from management forecasts and due diligence reports which cover all business areas. But once again, you are expected to present your finding in a concise manner whilst relaying the most important aspects of the transaction, with a particular focus on the risks and mitigants, strengthening your case.

The loan in question for this transaction had a tenor of 7 years, meaning that it would mature in mid-2031, and had a bullet repayment profile. When looking at a transaction whose repayment is structured like so, one of the largest risks is the refinancing risk; the risk which looks at a borrower’s ability to issue new debt before the existing debt matures to be able to repay this existing debt. If a borrower is unlikely to be able raise debt, it would be extremely difficult to justify investing in such debt.

For this deal, there was some doubt raised as to the borrower’s ability to meet this criterion, with downside case cash flow forecasts indicating that it would potentially become an issue. However, my team were confident in the company’s financial trajectory based upon our analyses, that would see it unlikely that the downside case would be what we would ultimately see down the line. Coupled with a strong core business, we were able to mute these doubts.

As was alluded to earlier, this was senior secured debt, meaning that the borrower posted security over items such as bank accounts, accounts receivable, and other assets on the balance sheet. However, there was some concern from the ExCo regarding this as a significant portion of the assets on the borrower’s project balance sheet was tied to goodwill, an intangible asset which cannot be converted to physical cash. Despite this, we deemed that the PE sponsor of the transaction mitigated part of this risk, as well as historical data indicating that the company would continue to grow exponentially throughout the tenor of the loan.

After a 2-hour presentation and Q&A session, we gained approval for this transaction, at which the legal department from each respective bank (Haitong and the arranger) would finalise the documentation. At this point, the grunt work is done and the only remaining thing is to complete Key Your Customer (KYC) forms.

Takeaways from my Internship Experience

Overall, my internship in leveraged finance provided me with invaluable insight into the fast-paced and intellectually challenging world of structured debt. I developed a strong understanding of how complex transactions are structured, from initial credit analysis to syndication and documentation. One of my key takeaways was the importance of balancing risk and return – not just in terms of financial metrics, but also in assessing the borrower’s industry dynamics, capital structure, and covenant protections. I also gained exposure to how lenders protect themselves through mechanisms like security interests and covenants, such as more complicated uses of floating charges over assets. Beyond technical knowledge, I learned the importance of attention to detail, clear communication, and collaboration across teams, all of which are essential in executing successful deals. By the end of the 9-month period, the experience solidified my interest in pursuing a career in leveraged finance.

Three Skills to Bring into a Role in Leveraged Finance

Finally, to pass on some wisdom to those who would perhaps be interested in pursuing career or just an internship in LevFin… Whilst there are many skills which are rather general to be able to succeed in finance and/or investment banking such as understanding the relationship between the three financial statements and being able to build a 3FS model from scratch, I will focus on three which are slightly more relevant when working in a Leveraged Finance division.

Deep understanding of capital structure

A comprehensive understanding of capital structure is foundational in LevFin, as it underpins nearly every transaction the team is involved in. Analysts must assess how different layers of financing, ranging from senior secured debt to mezzanine and equity, interact within a company’s balance sheet. This knowledge is essential for determining how much debt a company can sustain, how it should be structured, and where different investors sit in the hierarchy of repayment in the event of default. For instance, in an LBO, the sponsor and the arranging bank must work closely to optimise the mix of debt and equity in order to minimize the cost of capital while preserving financial flexibility. A firm grasp of capital structure also allows analysts to assess the impact of leverage on valuation, control, and credit risk, ensuring that the financing solution supports the strategic objectives of both the borrower and the investor base. At the end of this article, I have provided names of books and further readings including a book by Stephen Moyer. This is the gold standard when learning about capital structure and would thoroughly recommend it to those looking to further their knowledge.

Organisation

It may seem like an obvious soft skill to have, but its importance cannot be overstated. From the first day, as a LevFin analyst you need to give yourself the best possible to succeed in a high-tempo environment. If you are working within origination, it is possible that you are working on up to 6-7 deals at once which means that you are working with hundreds of documents, creating info memos, lenders’ presentations, financial forecasts etc. These documents will be sent around from different companies and departments, ranging from legal compliance certificates to intricate financial models. Therefore, I urge you that from the start, before even having reached this point, that you create neatly organised desktop folders, special Outlook folders – this will save the team time and avoid miscommunications and costly time delays. Even seemingly less important things such as formatting conventions when building financial models in Excel will minimise errors and spare you hours of time looking for a singular source of circularity across 20 tabs late at night.

Clear communication

This refers to both oral and written communication. Aside from being an essential skill in any workplace, it is even more key when working in LevFin. Whether you are working in origination, and structuring a transaction and creating marketing materials, or acting on the buyside of the deal, you will have to communicate with other parties, internally and externally, create summaries and presentations for a specific audience for a specific goal in mind. This is especially a challenge given the complicated nature of leveraged finance transactions. The best communicators are those who make the complex idea seem simple, and if you can master this art which is extremely difficult, you’re halfway there.

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Useful Resources

LCD Leveraged Loan Primer, S&P. This article was a brief, non-technical overview of leveraged finance, and specifically leveraged loans. If you want to understand more about such topics, primers are a great source of information for understanding market dynamics and trends, as well as other characteristics of loans.

Moyer S.G. (2004) Distressed Debt Analysis: Strategies for Speculative Investors, J. Ross Publishing. The gold standard for those who want to work in restructuring (but also LevFin), this is a rather in-depth read, and ventures into how firms such as hedge funds evaluate distressed debt investment opportunities. However, the first circa 250 pages are extremely information when learning about topics such as capital structure which is imperative for leveraged finance.

About the Author

The article was written in April 2025 by Max ODEN (ESSEC Business School, Bachelor in Business Administration, 2021-25). Should you have any questions for Max, or simply connect, do not hesitate to reach out to him on LinkedIn.

FMCG Sector: M&A Trends And Its Implications

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the M&A trends in the FMCG sector.

Introduction

The Fast-Moving Consumer Goods (FMCG) sector plays an essential part in the global economy due to its high volume of goods and consistent consumer demand. It includes goods from everyday essentials such as food and beverages to personal care products, and this sector thrives on efficiency, scale, and market penetration. In recent years, this sector recorded a spike in mergers and acquisitions (M&A) activities to help companies in the process to be come more globalized companies, increase market penetration, expanding the portfolio of the companies and help becoming more digitalized. This article studies the trends, tactics and effects of M&A in the FMCG sector and supported by data and case studies where applicable.

Figure 1. M&A Transactions & Value Worldwide Across All Sectors.

Source: IMAA

Key Drivers Of M&A In The FMCG Sector

Globalization And Market Expansion

Of the many reasons that drive M&A activity in the FMCG industry, globalization is the most important one. Firms in this industry have ambitions – they want to widen their geographical reach, access new markets and customers, and capitalize on the growth of these establishments in the emerging markets. With the saturation of mature markets such as North America and Western Europe, FMCG companies have been targeting new and emerging economies regions such as Asia, Africa and Latin America where the growth rates are relatively higher.

Global FMCG M&A Activity: According to PwC 2022 reports, the total value of M&A transactions in the consumer goods industry, including FMCG mergers, stood at about $300 billion in the year 2022. Emerging markets accounted for about 25% of this figure, shedding light on the focus of global FMCG strategies.

Case Study – Unilever’s Acquisition of Carver Korea: Unilever acquired Carver Korea for $2.7 billion in 2017. Carver Korea is focused on skincare, a market especially in South Korea that was estimated to grow at a CAGR of 9.2% between 2017 and 2025. Through this acquisition, Unilever enhanced its foothold in the Asian beauty market, where millennial consumers are becoming the target demographic for a leading beauty economy.

Portfolio Diversification

Diversification is a major driver for FMCG companies pursuing M&A. As consumer preferences shift and emerging trends, such as the big trend of health and wellness, companies are extending their products to cater to the changing dynamics. This trend combined has become crucial as FMCG giants are increasing their expansion efforts towards less mature categories, shifting from traditional product categories with slower growth prospects.

Nestlé’s Health and Wellness Strategy: Nestlé has recently been acquiring numerous companies operating within the health and wellness industry. The acquisition of Atrium Innovations for $2.3 billion in 2017 underscored their resolve to broaden their nutritional health services. Specializing in vitamins, minerals, and supplements, Atrium Innovations is positioned in a market projected to reach $349.4 billion dollars in 2026. Nestlé’s diversified strategy fits the emerging trend where consumers are in the market for products which guarantee health, wellness and elongation of lifespan.

Coca-Cola and Costa Coffee: Coca Cola purchased Costa Coffee for $5.1 billion in 2018 as a part of their strategy to enhance diversification by moving beyond non-alcoholic beverages. Investment in Costa Coffee also reflected Coca-Cola’s recognition that coffee is incrementally becoming a category with strong revenue potential especially with the CAGR of 4.3% projected for the coffee market globally.

Innovation And Product Development

Acquisition of small companies that are agile and quick in product development has been the focus of growth for many FMCG companies. As consumers become more selective of what they eat and drink, there is a shift in strategy for many companies that are looking to expand their portfolio through acquisition, targeting high growth areas such as plant-based foods, functional drinks and natural cosmetics.

PepsiCo’s Acquisition of KeVita: PepsiCo’s purchase of the US based company keVita, leading manufacturer of probiotics beverages, for $200 million as a part of the strategy of expanding and capturing a greater share in the functional beverage market. The market worldwide for probiotics is estimated to grow at a compound annual growth rate of 7.2% for the period of 2021 up to 2026. This acquisition reflects the broader trend of FMCG companies acquiring brands in high-growth, health-focused categories.

Sustainability And ESG Pressures

To consumers and businesses alike, sustainability has become a cause that is key to them, and in effect has led to a shift in the landscape of FMCGs. There are high levels of demand and need for sustainable business models among companies that have made M&As focused on acquiring brands that are environmentally friendly.

Unilever and Seventh Generation: Unilever’s acquisition of Seventh Generation, a US based company selling environmentally friendly cleaning products is a response to the change in consumer preferences in regard to their buying behavior. From 2021 to 2028, the market for eco-friendly household items is anticipated to grow at a CAGR of 6.5%. This acquisition made it possible for Unilever to pivot its portfolio to sustainable eco-friendly options which was in line with Unilever’s wider environmental, social and governance strategies goals.

M&A Trends In The FMCG Sector

Rise Of The Health And Wellness Segment

In the FMCG industry, it is relevant to talk about companies’ acquisitions in the health and wellness category as this sector has witnessed one of the fastest growth rates within the FMCG market. As per the market trends, consumers are now more oriented and prone towards healthy lifestyle products, hence the rise in acquisition in this space. According to recent developments, the majority of the FMCG companies are effectively acquiring minor brands from places that specialize in selling plant-based food, vitamins, dietary supplements, and functional beverages.

Global Health and Wellness Industry: As per the Global Wellness Institute, the estimated value of the global health and wellness market is expected to cross $6.9 Trillion by 2025. PepsiCo’s acquisition of KeVita illustrates how FMCGs are buying into companies with health benefits, as KeVita is an innovator in the probiotics market. The move is consistent with PepsiCo’s goal of expanding beyond sodas into healthier options.

Digital And E-Commerce Capabilities

The expansion of e-commerce which has been further fueled by the COVID-19 pandemic, has revolutionized the strategies of FMCG marketing. The recent mergers and acquisitions have gravitated towards the acquisition of companies with ability to perform and distribute goods directly to customers (DTC). Such trends are likely to prevail with e-commerce becoming a very important target to the selling of FMCG products.

Growth of FMCG E-Commerce: According to Kantar, in 2022, the e-commerce market of the Fast Moving Consumer Goods globally increased by 16%. To participate in this growth, FMCG players are expanding through mergers and acquisitions. Unilever’s acquisition of Onnit, a predominantly e-commerce wellness company, is an example of this transition.

Private Label Consolidation

The rise of private label brands has been evident given the demand from customers for quality products but at cheaper prices. This has in turn created a scenario where large FMCG companies have moved to buy private label manufacturing companies.

Private Label Market Share: As per NielsenIQ, private labels in Europe represent about 40% of the market. This trend spurred extensive consolidation in the industry as traditional FMCGs tried to protect market share by expanding their private label businesses against retailers’ brands.

Focus On Regional Players

Acquisition of regional players remains a popular corporate strategy for global multinationals in the FMCG industry. These acquisitions enable the companies to tap into local knowledge, existing distribution channels and local consumer tastes and preferences.

Regional FMCG M&A: Approximately 35% of the FMCG acquisition deals arranged in 2022 were targeted at acquiring regional players. This indicates the shift towards localized customizing of goods and services, especially in developing countries which tend to be very different in terms of their consumer base from western markets.

Implications Of M&A In The FMCG Sector

Increased Competition

The consolidation of FMCG companies through M&A has led to increased competition in the marketplace. This is because larger and more established players are able to leverage economies of scale, enhance their marketing capabilities, and invest in new product development, putting significant pressure on smaller players.

Global FMCG Market Size: According to Allied Market Research, the global FMCG market is on track to reach $15.4 trillion by the year 2025 and is expected to grow at a 4.9% CAGR. It is anticipated that this growth will be led by larger FGMC players hence leaving little room for smaller independent firms unless they figure out a way to innovate or are bought off.

Consumer Choice And Innovation

While M&A can lead to greater innovation as companies acquire new capabilities, it can also result in fewer choices for consumers if large companies consolidate and dominate key segments. Balancing innovation with consumer choice remains a challenge for FMCG giants.

Innovation through Acquisition: The research conducted by Deloitte’s M&A has shown that 75% of FMCG’s CEOs, view merger and acquisitions of smaller agile companies as rational and a desirable form of development. It is important to emphasize the position of M&A in the FMCG sector as a facilitator of innovation but as a means of ensuring diversity in the market.

Supply Chain Efficiencies

One of the main financial benefits of M&A is the realization of supply chain efficiencies. By consolidating supply chains and leveraging economies of scale, companies can reduce costs and improve profitability. However, this often involves the closure of redundant facilities and potential job losses.

Cost Synergies in FMCG M&A: Bain & Company estimates that FMCG companies typically achieve cost synergies of 5-10% following acquisitions, primarily through supply chain optimization and the elimination of overlapping processes. While these efficiencies benefit shareholders, they can also lead to short-term disruptions in the workforce.

Regulatory And Antitrust Scrutiny

As M&A activity in the FMCG sector increases, companies must also contend with regulatory scrutiny. Antitrust regulators, particularly in the U.S. and Europe, have become increasingly concerned with the impact of consolidation on competition.

Regulatory Actions: The takeover of Pioneer Foods by PepsiCo was ineffective in 2018 because the European Commission disallowed the merger on account of what it perceived as reduced competition in the food and drink market. More regulatory evaluation can be expected especially in situation where big FMCG companies want to acquire key competitors in the industry.

Conclusion

Rapid changes continue to occur in the FMCG industry and these changes are being driven by M&As. Through these strategic alliances, companies optimize growth in new markets, grow their business through other more versatile brands, or target expansion/diversification. However, as the sector consolidates, companies must carefully navigate regulatory challenges, maintain consumer choice, and balance innovation with market competition. The next decade is likely to see continued M&A activity as FMCG companies respond to evolving consumer preferences, digital disruptions, and sustainability pressures.

Related Posts On The SimTrade Blog

▶ Anant JAIN Top 12 FMCG Companies Worldwide

▶ Lilian BALLOIS M&A Strategies: Benefits and Challenges

▶ Suyue MA Analysis of synergy-based theories for M&A

▶ Basma ISSADIK My experience as an M&A Analyst Intern at Oaklins Atlas Capital

Useful Resources

PwC – Consumer Markets Insights 2022

Statista FMCG Market Data

Grand View Research FMCG and Health & Wellness Market Reports

Deloitte Consumer Products M&A Outlook

Global Wellness Institute Global Wellness Economy Report

Kantar FMCG E-Commerce Growth Report

Bain & Company Synergies in M&A

European Commission Merger Control Decisions

About The Author

The article was written in February 2025 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Top 12 FMCG Companies Worldwide: Growth, Market Share, and Investment Opportunities

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about the top 12 FMCG companies around the world.

Introduction

The Fast-Moving Consumer Goods (FMCG) sector makes a vital contribution towards the economy as it comprises of low-cost goods that are sold within a short duration. The sector encompasses items that are purchased for consumption such as food and beverages as well as household and personal care products such as toothpaste etc.

This article identifies the top 12 FMCG companies with the highest sales globally focusing on their performance, growth in market share, increases in sales volume and a look at opportunities for growth to potential investors.

Figure 1. Top FMCG Companies & Their Brands.

Source: Quartr

#1 Nestlé

Key Figures

• Nationality | HQ: Swiss | Vevey, Switzerland
• Market Capitalization: $350 billion (2024)
• Revenue: $94.4 billion (2023)
• Market Share: Leading player in global food and beverage, with significant shares in categories such as coffee (Nespresso) and bottled water (Poland Spring)
• Sales Growth: 6% increase in sales volume in 2023

Overview

Nestlé is the largest food and beverage company in the world with wide range of products in its basket including dairy, coffee, bottled water, snacks, baby food etc. Its product range includes famous brands like KitKat, Nescafe, and Purina. Nestlé’s strategic emphasis on nutrition, health, and wellness has allowed it to capture significant market share in various segments.

Key Insight

The market capitalization of Nestlé has been increasing by approximately 10% YOY. Almost one-third of the company’s portfolio has been realigned to focus on high growth areas like plant-based foods or wellness products. In addition, the above factors combined with its expenditure on e-commerce and digital marketing have allowed the company to create a wider market enhancing further its growth capacity.

#2 PepsiCo

Key Figures

• Nationality | HQ: American | Purchase, New York, USA
• Market Capitalization: $250 billion (2024)
• Revenue: $86 billion (2023)
• Market Share: Approximately 29% in the global snacks market
• Sales Growth: 6% increase in sales volume in 2023

Overview

PepsiCo is an American multinational food and beverage corporation holding worldwide famous brands of snacks (such as Lay’s, Doritos), drinks (Pepsi, Mountain Dew), and nutrition products (Quaker Oats). As the company has been quite successful in expanding its product line, more efforts should be invested into developing health-related snack and beverage products.

Key Insight

PepsiCo’s investment into healthy snacks products as of 2023 has contributed a further 10% rise in its snacks unit. The company has also embarked on a $400 million investment targeted towards sustainable solutions which will make it more attractive to consumers and investors who are more eco-friendly. In addition, PepsiCo has also focused on digital marketing strategies, and this has boosted its online sales by 25% compared to the previous year.

#3 Procter & Gamble (P&G)

Key Figures

• Nationality | HQ: American | Cincinnati, Ohio, USA
• Market Capitalization: $380 billion (2024)
• Revenue: $76 billion (2023)
• Market Share: Approximately 18% in the U.S. household care market
• Sales Growth: 5% increase in sales volume in 2023

Overview

P&G is a leading global consumer goods company specializing in a variety of products across multiple categories, including personal care, cleaning agents, and health care. With a portfolio that includes well-known brands such as Tide, Gillette, and Pantene, P&G maintains a strong presence in both developed and emerging markets. The company has dominantly focused on innovation, sustainability alongside consumer engagement which has made it cope effectively with widening market scope.

Key Insight

Over the last five years, P&G has maintained an impressive Compound Annual Growth Rate (CAGR) of around 5%. The company allocates approximately $1.5 billion a year on R&D with high emphasis on consumer insights and the digital space. This commitment to innovation, coupled with targeted marketing strategies, positions P&G as a formidable player in the FMCG sector.

#4 Unilever

Key Figures

• Nationality | HQ: British-Dutch | London, United Kingdom
• Market Capitalization: $250 billion (2024)
• Revenue: $63 billion (2023)
• Market Share: About 13% in the global personal care market
• Sales Growth: 7% increase in sales volume in 2023

Overview

Unilever manufactures a wide range of consumer products in multiple categories including food and beverages, personal care and home care among others. Due to brand names like Dove, Knorr, and Lipton, Unilever has carved a position for itself as one of the leaders in sustainability and social responsibility. The company has now committed to cut its carbon footprint and positively impact the lives of its consumers around the globe.

Key Insight

Unilever’s strategic emphasis on emerging economies has led to a 9% growth in developing regions such as Asia and Africa. The company’s approach of investing in local production facilities and sourcing materials locally has improved its market access in these regions. Besides, Unilever has plans to raise its expenditure on digital and e-commerce platforms to $1 billion in the next few years which will give it an extra advantage in the marketplace.

#5 Coca-Cola

Key Figures

• Nationality | HQ: American | Atlanta, Georgia, USA
• Market Capitalization: $250 billion (2024)
• Revenue: $43 billion (2023)
• Market Share: Approximately 43% in the U.S. carbonated soft drink market
• Sales Growth: 9% increase in sales volume in 2023

Overview

Coca-Cola is one of the pioneers of non-alcoholic carbonated drinks and is a global beverage leader, consisting primarily of Coca-Cola soda beverages. The company’s range extends beyond fizzy drinks and includes many juice, tea, and bottled water brands, with Fanta, Sprite and Dasani the primary products. Aware of changing consumer trends, Coca-Cola has proactively sought to diversify its product assortment to include healthier beverages.

Key Insight

After looking at Coca Cola’s 6% CAGR in the past 3 years, one thing is for sure; the company’s global sales volume has skyrocketed ever since the world was lost to the COVID pandemic. It’s worth noting that Coca-Cola managed to capture sizable portions of the functional market segment by emphasizing on introducing healthier options: namely low or no sugar beverages. Also, among the prospects of the company is the significant goal of the company to utilize eco-friendly sustainable materials, allowing the marketer to have at least 50% recycled material in all packaging by the year 2030.

#6 L’Oréal

Key Figures

• Nationality | HQ: French | Clichy, France
• Market Capitalization: $240 billion (2024)
• Revenue: $39 billion (2023)
• Market Share: Approximately 30% in the global cosmetics market
• Sales Growth: 8% increase in sales volume in 2023

Overview

L’Oreal is a renowned manufacturer and seller of various beauty and cosmetic products such as skincare lines, makeup and hair care products. Brands under its portfolio include Lancôme, Garnier and Maybelline. L’Oreal has an impressive and outstanding record in investment as well as commitment towards the research and development of beauty and skincare lines.

Key Insight

L‘Oréal’s direct-to-consumer (DTC) sales have expanded by 35% which indicates that there are emerging changes in the purchasing behavior of the consumers. In addition, the company has set a target of investing $1 billion on sustainability initiatives towards 2025 and this is likely to increase its appeal for socially responsible investors. Moreover, L’Oréal’s focus on inclusivity and diversity in its marketing strategies has further broadened its consumer base.

#7 Danone

Key Figures

• Nationality | HQ: French | Paris, France
• Market Capitalization: $40 billion (2024)
• Revenue: $28 billion (2023)
• Market Share: Approximately 14% in the global dairy market
• Sales Growth: 6% increase in sales volume in 2023

Overview

Danone specializes in dairy and plant-based products, nutrition for infants and children, and bottled waters. The principal brands include Activia, Evian and Nutrilon. It is worth noting that the company’s special focus on health and nutrition is tantamount to increased health consciousness among consumers.

Key Insight

Danone’s focus on sustainability has led to a 12% increase in its plant-based product sales. The company’s commitment to reducing its carbon footprint has positioned it favorably among environmentally conscious consumers. Danone’s strategic partnerships with health-focused organizations further enhance its market credibility and appeal.

#8 Mondelez International

Key Figures

• Nationality | HQ: American | New York, USA
• Market Capitalization: $100 billion (2024)
• Revenue: $28 billion (2023)
• Market Share: Leading player in the global snacks and chocolate market, with around 15% market share
• Sales Growth: 5% increase in sales volume in 2023

Overview

Mondelez specializes in snacks, including biscuits, chocolate, and candy. Its portfolio features iconic brands such as Oreo, Cadbury, and Trident. The company has focused on expanding its offerings in premium and organic snack categories, capitalizing on changing consumer preferences.

Key Insight

Mondelez sustains an online sales increase of 25% in 2023 YOY, growing as majority of shopping moves to the online space. Mondelez focus on premium organic and gluten-free snacks has been well received by the market. Mondelez marketing has also paid off as the company has devoted significant resources to promoting its green strategy.

#9 Kimberly-Clark

Key Figures

• Nationality | HQ: American | Irving, Texas, USA
• Market Capitalization: $50 billion (2024)
• Revenue: $20 billion (2023)
• Market Share: Leading player in personal care, with around 27% in the U.S. diaper market
• Sales Growth: 4% increase in sales volume in 2023

Overview

Kimberly-Clark focuses on the manufacturing and selling of personal care and hygiene products which include Huggies, Kotex, Scott etc. in their range. The company is innovation driven & focus its attention on the preferences of consumers with significant emphasis on sustaining target market in the product.

Key Insight

Kimberly-Clark has seen a consistent growth rate of 4-5% in its personal care division, fueled by increased birth rates in certain regions. The company’s emphasis on innovation and sustainable product lines positions it well for future expansion, with an estimated $250 million investment planned for R&D over the next three years.

#10 General Mills

Key Figures

• Nationality | HQ: American | Minneapolis, Minnesota, USA
• Market Capitalization: $50 billion (2024)
• Revenue: $19 billion (2023)
• Market Share: Approximately 15% in the U.S. cereal market
• Sales Growth: 5% increase in sales volume in 2023

Overview

General Mills produces a variety of food products, including cereals, snacks, and meals. Its well-known brands include Cheerios, Betty Crocker, and Häagen-Dazs. The company has focused on innovation and product diversification, adapting to consumer trends toward health and wellness.

Key Insight

General Mills has focused on expanding its portfolio with health-oriented products, leading to a 7% increase in organic sales. The company’s strategic acquisitions and partnerships have strengthened its market position, making it a solid choice for investors looking for steady growth. Furthermore, General Mills has increased its investment in digital marketing, which has proven effective in driving brand loyalty.

#11 Colgate-Palmolive

Key Figures

• Nationality | HQ: American | New York City, New York, USA
• Market Capitalization: $65 billion (2024)
• Revenue: $18 billion (2023)
• Market Share: Approximately 40% in the global oral care market
• Sales Growth: 4% increase in sales volume in 2023

Overview

Colgate-Palmolive markets and sells oral care, personal care and household products with great focus on Colgate toothpaste and Palmolive soap. The company highlights innovation and eco- friendly appeal in its products to satisfy the current market needs.

Key Insight

There has been a consistent rise in the growth rate for Colgate to about 4% in emerging markets. These are regions which are beginning to embrace oral care practices. The firm has also made a substantial commitment towards advertising as approximately $700 million was spent in 2023 for increasing the presence and interaction of the brand with the customers. Also, recent actions such as the reduction of plastic use firmly positioned Colgate’s brand to the satisfaction of sustainability priorities.

#12 Reckitt Benckiser

Key Figures

• Nationality | HQ: British | Slough, United Kingdom
• Market Capitalization: $55 billion (2024)
• Revenue: $15 billion (2023)
• Market Share: Leading player in health and hygiene, with a 15% share in the disinfectants category
• Sales Growth: 5% increase in sales volume in 2023

Overview

Reckitt Benckiser manufactures health, hygiene and home products and their trademark brands include Dettol, Lysol and Nurofen. The company has focused on expanding its portfolio to include products that address health and hygiene concerns, particularly during and after the COVID-19 pandemic.

Key Insight

Reckitt’s sales of disinfectants surged by 25% during the pandemic, and the company has focused on maintaining this growth by investing in marketing and innovation. The company allocated approximately $500 million in 2023 to design new and innovative products targeting consumer health needs. The position of Reckitt in the forthcoming market after the pandemic period is promising, thanks to the company’s commitment to health and hygiene.

Conclusion

The FMCG sector is still relevant and contributes significantly to the world economy. The companies outlined above are not only involved in high revenue but also increasing their market share and volume of sales on a year-on-year basis. They attract investment opportunities because they present sustainable goods which is the trend among consumers. Such a trend allows investors who want an all-encompassing degree of risk to target these leading FMCG firms as they position themselves for growth in supplying the market through changing demands and maintaining their competitive position worldwide.

Related Posts On The SimTrade Blog

Useful Resources

NielsenIQ’s FMCG Pulse Report

Market Xcel – Top FMCG Brands of 2024

Technavio FMCG Market Forecast 2024-2028

About The Author

The article was written in February 2025 by Anant JAIN ((ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Top 10 Economies In The World In 2024: Dynamics Of Growth And Opportunities For Investment

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) presents the top 10 economies in the world.

Introduction

As we near the end of 2024, the global economic landscape reflects different patterns of growth fostered by technology, demographics and other geopolitical changes. We take a closer look at the world’s ten largest economies in terms of their current Gross Domestic Product (GDP), change over the last five years, interesting facts and factors that provide countries with great investment opportunities in various sectors.

#1 United States (GDP: $27 trillion)

As of 2024, GDP in the United States is projected to reach nearly $27 trillion, solidifying its position as the largest economy in the world. This figure represents an approximate 12% increase from 2019, when the gross domestic product was around $24 trillion. This can be attributed in part to a strong job market, as the unemployment rate at the end of 2023 was 3.5%, along with healthy consumer expenditure which makes up around 70% of the total economic activity.

There are multiple attractive investment opportunities in the USA. The technology sector, more specifically the sub-sectors of artificial intelligence, cybersecurity, and fintech is expected to maintain a steady growth of above 15% CAGR (Compound Annual Growth Rate) until 2028. The renewables energy sector is gaining momentum with investments expected to be over $500 billion in the next ten years in line with the country’s aim of attaining net zero emissions by 2050. Real estate is also bringing in investment even in the metropolitan cities which are undergoing a rejuvenation.

Source: World Bank

#2 China (GDP: $19 trillion)

In terms of GDP, China is the second largest nation in the world. For 2024, its GDP is predicted to reach around $19 trillion which means an annual growth of about 9% from $17.4 trillion in 2019. There has been an increase in the rate of urbanization, with more than 64 % of the population being urban dwellers, improving internal consumption and demand.

China has a multitude of investment prospects. Annual growth rates for the technology sector, mainly in 5G, Artificial Intelligence and e-commerce, is expected to be above 20%. With a target to have non fossil fuels contribute 25% of its energy consumption by 2030, solar and wind sectors will encounter major investments. Also, the infrastructural opportunities provided by the ell and road initiative are pulling more and more international investors who are looking to exploit the upward trend of China.

Source: World Bank

#3 Japan (GDP – $5.1 trillion)

Japan’s economy is currently rated at around $5.1 trillion in 2024 and has been growing at a rate of about 7% from $4.75 trillion in the year 2019. The country has its share of demographic problems including an unfavorable aging population and relatively low amount of births. However, the country has sustained its superiority in technology and manufacturing industries, specifically in the robotics and healthcare manufacturing.

Japan is on the recovery path, and visible investment opportunities exist in some key sectors. Robotics, which is expected to grow at a compound annual rate of 15%, would be most useful in the case of healthcare and in automating manufacturing processes. The renewable energy sector hopes to increase the generation of renewables to 36% of its energy generation mix by 2030, creating opportunities in investments in solar and wind. In addition, Japan’s online retail trade is expected to grow to around $170 billion by the year 2025, which is mainly driven by Japan’s expanding digital economy in e-commerce and fintech.

Source: World Bank

#4 Germany (GDP: $4.7 trillion)

With an estimated GDP of about $4.7 trillion in 2024, Germany is the largest economy in Europe, showing a growth of approximately 8% over the past five years i.e., from $4.35 trillion GDP in 2019. Germany’s industrial sector remains important to the overall economy, where manufacturing industry alone accounts for approximately 20% of the GDP.

In light of investment opportunities in Germany, there especially stands out green technology and digital transformation. The German government aims to provide a funding of approximately $110 billion for renewable energy resources by the year 2030 and this has leveled up the solar and wind projects. The car industry also includes investments worth more than $20 billion by the year 2025 in battery technology and infrastructure for charging electric vehicles. As for the development of Industry 4.0 technologies in Germany, it presented perspectives of smart manufacturing and advanced automation.

Source: World Bank

#5 India (GDP: $4.1 trillion)

India is one of the fastest growing economies in the world. It is projected that India’s economy will have a GDP size of about $4.1 trillion by the end of 2024, showcasing about a 15% growth since 2019 when the GDP evolution stood at around $3.56 trillion. More than half of its total population is below the age of 25, this poses India to a crucial and growing consumer base.

India provides numerous opportunities for investments in different sectors. The information technology sector alone is expected to expand at an annual rate of 12% mostly due to the growth in IT services, e-commerce and Fintech. The rest of the investment will come from the government’s National Infrastructure Pipeline which aims to generate $1.5 trillion in investment by the year 2025. In addition to this, the renewable energy industry is expected to achieve 500 GW of renewable capacity by 2030 opening up vast opportunities for investment in solar and wind energy projects.

Source: World Bank

€6 United Kingdom (GDP: $3.7 trillion)

The economy of the United Kingdom has a GDP of about $3.7 trillion as of the year 2024 which indicates a 6% growth over the last five years from $3.5 trillion in 2019. London is also the larger financial center of the world with financial services accounting for around 7% of gross domestic product.

The opportunities for investment in the UK, especially in the fintech segment, which reached over £11 billion in the year 2022, remain great. The renewable energy market is growing, with the government’s aim of achieving up to 50 GW of incorporated offshore wind capacity by the year of 2030. Another attractive area is healthcare, which is in demand because of the increase in the elderly population, and the NHS budget is expected to reach over £200 billion each year by 2024. Furthermore, the creative industries, media and digital content, are anticipated to also grow considerably, thus increasing investment opportunities.

Source: World Bank

#7 France (GDP $3.4 trillion)

The economy of France, as estimated in 2024, is approximately $3.4 trillion, growing by about 5% over a period of 2019 to 2024. France enjoys a diversified economy with agricultural, technological and tourism sectors that are all notably important in terms of the contribution to GDP. Tourism alone represented approximately 7% of GDP in 2019 and welcomed more than 89 million tourists.

Investment opportunities in France however are not lacking, in particular the technological sphere which has had rapid growth in startup environments specializing in artificial intelligence and cybersecurity. In fact, the French government has pledged to invest almost 30 billion euros on digital transformation by 2025. This market segment, further, has plans to provide 40% of electricity from renewable sources by 2030. France has a great potential for investors due to its policies on sustainability and innovation.

Source: World Bank

#8 Canada (GDP: $2.3 trillion)

Canadas GDP is approximated at $2.3 trillion as of 2024, this has seen a step up of about 10% from 2019 where their GDP’s stood at $2.09 trillion. The country possesses a stable political environment, vast natural resources and a developed banking industry.

Investment opportunities in Canada, particularly in oil and gas natural resources where Canada ranks amongst the top three countries in proven oil reserves are quite high. The technology industry is currently booming with investment in software development, Artificial Intelligence, and clean technologies expected to grow in this sector to about 5 billion by 2025. Also, hydropower makes up more than 80% of Canada’s electricity generation with great opportunities for renewable energy investments.

Source: World Bank

#9 Italy (GDP: $2.2 trillion)

As we move closer to end of 2024, the GDP of Italy is estimated to be around $2.2 trillion which depicts an approximate growth of about 4% since the figure was around $2.12 trillion in 2019. In this country, culture and industry are well represented, especially in the field of luxury products and automobile production, which enables the economy to preserve its firm stability.

In Italy, investment opportunities are significant especially in the luxury goods industry that accounts for approximately 8% of GDP which is expected to grow at a CAGR of about 5% over 2026. The automotive industry is also changing as investments in electric vehicles are expected to reach €12 billion by 2025. Besides, the innovative transformation of the food sector is also possible due to the rich agricultural base of the country, as well as the increasing demand for organic and high-quality food. There are increasing investment opportunities in the highly innovative and sustainable business environment shaped by the government policies.

Source: World Bank

#10 Brazil (GDP: $2.1 trillion)

With a GDP of around $2.1 trillion in the year 2024 which is estimated to show a growth of about 9% since 2019 where it stood at 1.93 trillion dollars, Brazil as the largest economy in Latin America has truly made its mark. The country is blessed with plenty of resources whether it’s in the agricultural, mining or fuel fields and is vital in explaining the economy performance.

In Brazil, investment opportunities are present everywhere with especially agribusiness being one of its top exports. There’s huge potential for growth in the renewable energy sector, particularly hydropower and biofuels, with investments projected to exceed $30 billion in this sector by 2025. Moreover, infrastructure development has actually offered tremendous prospects, especially transportation and logistics, as the government is working to improve integration and efficiency. Additionally, Brazil’s geographical position in South America makes it even more interesting for international investors who wish to penetrate regional markets.

Source: World Bank

Conclusion

Looking ahead to the year 2025, the global economy appears to expand in all corners of the world while presenting a wide range of investment opportunities in the world’s largest markets. Countries such as the U.S. and China still remain global leaders, however, the case for emerging markets like India and Brazil is significant for investors. The patterns of economic growth, technology integration, sustainable development approaches as well as geo-political stability will to a large extent, determine the patterns of investment as well as economic strength in the future. Taking into consideration the above trends, will help investors be well positioned to benefit from the changes in the world economy that are likely to occur in the next few years.

Related Posts On The SimTrade Blog

▶ Bijal GANDHI Gross Domestic Product (GDP)

Useful Resources

World Bank Global Economic Prospects

World Bank Data about GDP

International Monetary Fund (IMF) World Economic Outlook

Organisation for Economic Co-operation and Development (OECD) Economic Outlook

McKinsey & Company – Global Economic Trends

About The Author

The article was written in February 2025 by Anant JAIN ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).

Hyperinflation In Argentina Since 2018: A Deep Dive Into The Economic Crisis

In this article, Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) talks about hyperinflation in Argentina.

Introduction

Starting from the year 2018, Argentina has been battling one of the unsurpassed economic setbacks in its history. The economy is facing hyperinflation, widespread poverty, and debts that are simply too vast to comprehend. Although Argentinian citizens have experienced chronic struggles with inflation, the crisis of 2018 onwards lingers with intensity. In this article, we’ll look at how and why hyperinflation occurred in Argentina.

Argentina’s Inflation Timeline

To understand the scale of the problem, it’s important to first look at how inflation in Argentina has evolved over the years.

2018: Argentina entered a period of acute economic stress, with inflation reaching 47.6% by the end of the year, up from 24.8% in 2017, according to the National Institute of Statistics and Census (INDEC). This sharp increase in inflation was a direct consequence of a currency crisis, triggered by a combination of poor economic policies, external debt, and an overreliance on foreign borrowing.

2019: Inflation accelerated further, hitting 53.8%. This made Argentina one of the highest-inflation economies in the world, surpassed only by Venezuela and Zimbabwe. The International Monetary Fund (IMF) played a significant role during this period by extending a record $57 billion bailout to stabilize the economy.

2020: Despite the global slowdown due to the COVID-19 pandemic, inflation in Argentina remained high, clocking in at 36.1%, as per INDEC data. The global pandemic worsened the country’s recession, leading to a 9.9% contraction in GDP, further exacerbating the economic crisis.

2021: Inflation surged again to 50.9%, reflecting ongoing macroeconomic imbalances and the effects of expansionary monetary policy that the government had implemented to stimulate a recovery post-pandemic.

2022: Argentina’s inflation skyrocketed to 94.8%, as the country struggled with soaring food prices, energy costs, and wage pressures. By comparison, the global inflation average was just 8.8%, according to the World Bank. Argentina’s inflation was driven by a devaluation of the peso, energy subsidies, and political uncertainty.

2023: By mid-2023, Argentina was firmly in the grips of hyperinflation, with an annual inflation rate of 114.5%. This has put millions of Argentinians in financial distress, as the purchasing power of the peso continues to erode at an alarming rate.

The figure below gives the evolution of the annual inflation rate in Argentina for the period 2010-2023 (data source: World Bank).

Figure 1. Inflation Rate In Argentina.

Source: World bank

Drivers of Hyperinflation

The causes which have led to hyperinflation in Argentina, can be pieced together from a variety of sources. It includes factors including unwise fiscal policies and global economic conditions as contributing elements of the country’s ever intractable monetary disorder.

Currency Depreciation

The Argentine peso has been sharply devalued since 2018. The exchange rate stood at around $20ARS:$1USD at the beginning of 2018, but by 2023, the black-market rate stood at more than $900 ARS:$1USD. This decline in the value of the currency in turn has led to inflation, as the cost of imports has significantly increased and hence raised cost in different industries.

Debt Crisis

Argentina’s debt-to-GDP ratio surged to 89.4% by 2020, up from 53.6% in 2017, according to the IMF. The country’s repeated reliance on foreign loans and failure to pay them back has led to a loss of investor confidence. Argentina defaulted on its debt in 2020, further complicating efforts to stabilize its economy.

Fiscal Deficits

Chronic fiscal deficits are a core reason for the hyperinflation that Argentina experiences. Between 2018 and 2023, Argentina ran persistent fiscal deficits that averaged 5.2% of GDP, according to the data from Trading Economics. Such deficits were financed through the printing press of the government, which served to worsens inflationary factors.

Political Instability

The political scene in Argentina has been chaotic that virtually every incumbent believes in different policies to resolve the economic crisis. Policies which Mauricio Macri (2015-2019) aimed at deficit reduction through austerity was not implemented due to opposition. In this regard, former president Alberto Fernández (2019-present) swayed the economy towards more expansionary policies which increased the level of inflation. Political fragmentation and lack of consensus around economic strategy has been the main contributor to lack of progress in national reforms.

External Shocks

Argentina is heavily reliant on commodities especially soybeans. The world market price of soybeans dramatically dropped in the year 2018, which adversely affected the revenue from exports and increased the balance of payment deficit. Additionally, the increase in global interest rate after 2021 made it too expensive for Argentina to borrow thus worsening its already bad debts.

Impact on Society

The consequences of hyperinflation are most acutely felt by the Argentine people. A few of the most significant impacts include:

Poverty

The World Bank estimates that Argentina has a poverty rate of over 40.1% in the year 2023. Inflation has impaired the purchasing capabilities of middle and lower scorers, pushing several millions into the poverty bracket. This is particularly worrying in a country where poverty dropped to 25.7% in 2017.

Real Wages

Real wages in Argentina have taken a drastic downward turn. The average wage in Argentine Workers’ Central Union (CTA) was about 20% lower in 2022 compared to 2017 figures. This is due to the faster rate of inflation meant that any growth in wages was eclipsed, cutting working peoples earnings and making basic needs more expensive.

Food Prices

Food inflation is one of the worst in the world at over 120% in the year 2023 according to INDEC. The prices of most basic staples such as bread, meat and vegetables have spiralled out of control leading to widespread food insecurity.

Social Unrest

The economic misadministration and the spiralling consumer prices have, for a long-time now, suffocated the economy and triggered a number of protests throughout the country. In July 2022, large scale protests emerged in Buenos Aires with protestors clamouring for wage increases and government action over inflation. A continued cycle of instability gave rise to fears of further violence.

Policy Responses

The government of Argentina has attempted many policies aimed at reducing inflation including price controls however the results have mostly been progressively ineffective.

Price Controls

The menace of runaway inflation had prompted the governments which succeeded the Macri’s administration to attempt implementing caps on the prices of basic needs. To the contrary, however, there was an increase in the demand for those goods which could not be satisfied in the market due to the proliferation of the black market which increased the prices of goods significantly.

Currency Exchange Controls

In an effort to contain the depreciation of the peso, rigid exchange control was administered over external currency within Argentine borders. These measures, while effective only in the short term, have never resolved the chronic deficits and dependence on external borrowing. It is known that since 2023, the unofficial rate of the peso serving black market transactions drifted a long way from the official one and in fact magnified other economic distortions.

IMF Bailouts

The last time the International Monetary Fund (IMF) came to Argentina’s aid was in 2018, when the Fund approved a record $57 billion package. The purpose of this package was to boost Argentina’s liquidity and promote fiscal discipline. Unfortunately, the loans’ provisions such as public expense cuts, have caused public outrage and it has been hard to enforce them politically. In 2022, the IMF and Argentina renegotiated the loan terms, extending repayment deadlines but without significant relief from the debt burden.

Interest rate

Attempts to reduce the inflation by increasing the interest rates were made by the Central Bank of Argentina. As of 2022, the central bank’s rate has been raised to 75%, which is considered one of the world’s highest, but this significantly controlled inflation, but rather increased borrowing and thereby inhibited growth.

Conclusion

Argentina’s hyperinflation since 2018 has been driven by a complex web of factors, including currency depreciation, external debt, fiscal deficits, and political instability. The human and social costs have been severe, with rising poverty, declining real wages, and widespread food insecurity.

To stabilize the economy, Argentina must focus on structural reforms, including improving fiscal responsibility, renegotiating its debt burden, and fostering political stability. However, the road ahead is fraught with challenges. Without a concerted effort to address the root causes of the crisis, Argentina risks continuing down the path of economic collapse, with hyperinflation threatening to erode the social fabric of the nation.

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Useful Resources

International Monetary Fund (IMF) Argentina

World Bank Economic data for Argentina (inflation rate)

El País (12/01/2024) Argentina’s annual inflation soars to 211.4%, the highest in the world

International Banker (16/05/2023) Why Inflation in Argentina Is Above 100 Percent

About The Author

The article was written in February 2025 by Anant JAIN (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).