Q1 2018 Spotlight
As is typical in the consumer world in Q1, the year started like a lamb and ended like a lion as deal flow and activity picked up in the second half of the quarter. While the public equity markets have seen fluctuations related primarily to political rhetoric/moves, the private capital markets have remained healthy and largely immune from volatility affecting the public equity markets.
The Harris Williams Consumer Group came into 2018 with a full deal pipeline and we rounded out the quarter with five closed deals. These closed deals, and those in our pipeline, continue to reflect the breadth of activity in the consumer sector as well as the continued interest from both strategic and financial buyers to actively find strong opportunities to invest their capital.
Spotlight on Household Goods
The global $350 billion housewares market is a large, dynamic market comprised of a broad array of subcategories, each with their own consumer demand drivers. Over the past several years, the sector both globally and in the US specifically has undergone a transition as both consumer preferences and the retail landscape continue to evolve. While the lion’s share of purchases continue to be in brick & mortar retail formats, the percentage of online retail and direct to consumer has increased meaningfully, to over 20% of sales in the U.S., and within the traditional offline retail segments, the category of retail is also seeing shifts in many categories to the large mass retailers.
As in any transitionary period, the current environment creates some growing pains as companies adapt to changes/channel shifts but it also provides opportunities for brands as they drive growth in new ways. The reaction from many players in the space has been to invest in their business, both organically and via acquisition, to increase the breadth of their product and brand portfolios to serve channel relationships with a more comprehensive offering. Companies are also looking to use M&A to add new skill sets, access new channels, and develop more efficiencies across the platform by leveraging fixed costs across a broader organization.
The Amazon effect, and the consumer migration to online more broadly, continue to ripple through organizational structures and the skill sets needed to be successful in the future. Companies are working internally and with the help of outside consultants to hone their approach and invest in capabilities to evolve into the e-commerce retailing world. Wholesale shifts are underway in design, sourcing, marketing and other areas to stay ahead of consumer behavior. Many companies are developing online exclusive products aimed at particular demographics. While the shift online is generally in earlier innings within housewares relative to other Consumer sectors, leading players have demonstrated clear, and growing, success in the e-commerce format.
One recent transaction that exemplifies many of these themes is the merger between Filament Brands and Lifetime Brands. Harris Williams & Co. recently helped bring together these two leading housewares providers, creating the leader in North American non-electric housewares. The merger was truly transformational for both companies. The combination will provide a host of benefits, including increased scale, expanded brand opportunities, meaningful cost savings, and enhanced presence with key retail partners. Notably, the combined entity will have significantly increased presence on Amazon, with sharing of best practices across the new platform.
The HW&Co. Consumer team attended the International Home + Housewares Show in Chicago again this year. The show was well-attended by manufacturers, retailers, and investors. The team spent a lot of time at the show with key industry participants and discussed their views on current themes, topics, and trends across the sector:
On-the-go: Manufacturers continue to broaden their offerings in the food-on-the-go space. There has been a proliferation of soft goods, storage, and hydration products aimed at this consumer demographic. Various tailwinds drive demand for these types of products (health and wellness, convenience / time, cost savings), and these demand drivers are not expected to abate any time soon. Additionally, several providers have entered licensing deals with well-known personalities and brands to inject a fashion element into products, showing just how deeply rooted this trend has become as these types of items have become a daily part of consumers’ lifestyles.
Back to Basics / Authenticity: Across the housewares landscape, there has been significant growth in products that allow people to make authentic food and drink at home. This has been driven primarily by people demanding higher quality offerings, but also by concerns over health and wellness and generally being more conscious of what they are choosing to consume.
- Cast Iron: Seeking to capitalize on a growing trend, many leading manufacturers have expanded their cast iron cookware offering as consumers have shown a desire to create authentic recipes. Also driving this trend has been consumer aversion to non-stick surfaces that can become damaged and potentially unsafe for food contact. Cast iron cookware providers have enjoyed increased demand for their products, as evidenced by increases in manufacturing capacity.
- Craft Coffee: Consumers are increasingly exploring ways of brewing that preserve the integrity and flavor of the coffee bean, such as pour over coffee. Given the ongoing trend towards demanding higher quality beans, the method of brewing has become important in the finished product. There are several glassware and appliance companies with pour over offerings that are benefitting from this increased demand.
Notable LTM Transactions Across Household Goods
Public Markets Overview
Recent North American Consumer M&A
The information included in this Industry Update was sourced from FactSet.