Harris Williams Consumer Update
Consumer Quarterly Update – Higher Multiples, Fewer Opportunities
Through the first half of 2019 the global consumer remained strong, and so has buyer and investor interest in the sector. While tailwinds and headwinds vary by country, we continue to see positive signs in many underlying fundamentals, including consumer sentiment, wage growth, unemployment, and consumer spending. Those fundamentals foster the stability and growth required to support long-term investment in the sector.
In addition to capitalizing on these macro trends, leading consumer companies have adapted to changes in consumer tastes and preferences. They have also responded to issues and opportunities created by changes in the retail landscape, refining their consumer engagement models to reach consumers how, when, and where they prefer.
As shown below, despite strong buyer and investor interest, consumer M&A volume has declined year-over-year. Both buyers and sellers are working to interpret valuation impacts and uncertainty created by the continued channel shift from brick-and-mortar retail to e-commerce, U.S. trade policies and tariffs, geopolitical tensions, and Brexit. These factors are impacting specific companies and sectors in different ways, some positively and some negatively.
While this uncertainty has slowed activity in certain sub-segments of the consumer sector, it has significantly increased interest in others. Buyers (strategic, financial, domestic, and international) are lining up to deploy capital in areas that are less impacted by the factors described above, and that have strong long-term growth prospects.
While no sector is out of play for the right company with good growth prospects, valuations continue to show a divergence. The highest-quality assets in the right sectors continue to achieve higher valuations (supply and demand shift has created significant scarcity value), while other sectors are seeing more muted valuations. Based on the transactions we have closed in 2019, interest is especially strong in home and consumer services, travel and leisure, fitness, food, and restaurants.
In addition, some traditional consumer and retail investors with expertise in box/location-based businesses have broadened their apertures. Many are focusing on the consumer health segment (e.g., veterinary services, dental, optical, dermatology, and urgent care), in which they can apply their brand, marketing, and lead generation expertise to accelerate growth.
Notable Deals for YTD 2019
Though the number of deals is lower for the year to date period, several notable deals done reflect the changes happening in the broader consumer sector as well as the attractive valuations for premier businesses in their respective segments of the market:
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