Harris Williams Consumer Update
Consumer 2019: Products and Services Recap
2019 marked another year of opportunity and evolution in the consumer M&A landscape. The macro environment throughout the year provided many strong tailwinds with low unemployment, increasing wages, rising stock markets/consumer wealth, and positive consumer sentiment. Through all of this, consumer companies were continuing to adapt to evolving consumer tastes and trends (e.g. developing unique products/services that resonate with the consumer’s needs, engaging and educating the consumer to aid the purchase decision, and creating the environment whether online or in physical stores for when/where/how the consumer wants to make the purchase), headwinds from rising labor costs/lower labor availability, as well as implementation/uncertainty around tariffs impacting supply chains. While these changes have varying near-term impacts on M&A activity within sub-segments of the consumer sector, buyer interest remains extremely high and valuations remain at or near all-time highs for businesses/brands that are driving growth through innovation, providing unique products and services that meet the needs of the consumer, and better routes to market.
As we saw in 2018, consumer spending continued to move more toward the service economy in 2019, and this shift continued to drive strong M&A activity across service brands both domestically and internationally. Businesses across consumer and home services, fitness, consumer and pet health (e.g., vet, dental, dermatology, optometry, etc.), and travel and leisure have experienced some of the strongest activity. That said, consumer products, particularly areas around health and beauty, outdoor and enthusiast products, and products geared toward kids and pets, continue to be of high interest given their non-discretionary nature and the personal connection related to how these products/brands represent the lifestyle and values of the end consumer – whether it is high end brands or value-oriented products, the consumer is aligning with the companies/products that fit them. Additionally, we continue to see more investors looking at ways they can participate in the growth of the consumer sector but without having to determine which brand will outpace the industry. This has translated into more investment activity around contract manufacturing, components, and technology that enhances other brands’ products, service, or experience.
Across Harris Williams and our consumer team, these trends have been evident in our 2019 activity as reflected in the select tombstones below:
Harris Williams Consumer Update
M&A Stats Under Represent the Interest in the Consumer Sector1
Consumer M&A interest remains strong and more investors are looking for ways to invest capital across the sector. While the M&A stats show a decline in overall M&A volume, we believe the data is impacted by several factors and negatively impacts the view of activity in the sector. First, the headwinds related to changes in the retail environment (e.g., bankruptcies, consumer purchasing behavior, etc.) and tariffs have and do have an impact on certain sub-segments of consumer M&A activity that caused some companies to temporary pause their M&A pursuit as buyers and sellers reassess and recalibrate. That said, by no means did these segments stop, but activity is lower than it was several years ago. Second, historical retail investors have shifted to capitalize on the strong trends in consumer health as segments across the practice management space have gained significant traction over the past few years. Though these deals are for healthcare oriented services, the traditional retail investors have been amongst the most active as these deals mirror many of the traditional retail growth metrics (e.g., same store sales growth, white space for new locations, four-Wall profitability, maturation ramps, etc.). Deals in this sector tend to be counted more in the healthcare metrics but are being driven more and more by consumer oriented strategic and financial buyers. Lastly, the derivative investments around the consumer sector related to deals such as contract manufacturing, products sold into/through foodservice, and component companies tend not to get reflected in the pure consumer metrics.
Valuations Remain Strong in the Consumer Sector2
Overall, consumer industry valuations remained strong during 2019 but with continued stratification based on segment, consistency of growth, and visibility into future growth. Values at the top of the sector continued to set records and draw substantial interest from buyers. We expect this stratification to remain in 2020 and for valuations to continue given the positive sentiment that remains toward the sector. This can be seen in the graph below reflecting the public valuations for companies across several key consumer sectors.
Harris Williams Consumer Update
Notable Deals in Q4 2019
As we reflect on the last quarter of 2019, we have highlighted below several notable deals done that 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:
Franchise Group Acquires American Freight of Ohio
Franchise Group has entered into an agreement to acquire American Freight Group of Ohio. The retail chain offers brand-name furniture, mattresses and home accessories at discount prices. The transaction is expected to be completed in the first quarter of 2020.
Knowlton Development Corporation Acquires HCT Group
Knowlton Development Corporation and HCT Group have entered into an agreement to partner with one another to provide customers with an expanded suite of cosmetic manufacturing and packaging solutions. The transaction will enable the pair to leverage customer relationships, geographic footprints and products.
American Securities Acquires United Planet Fitness
American Securities has announced that it has completed the acquisition of United PF, a Planet Fitness franchisee with 168 gyms across the United States. During the transaction, American Securities partnered with the current management team led by CEO and Founder, Trey Owen. Financial terms were not disclosed.
Advent International Acquires Olaplex
Advent International has announced its agreement to acquire Olaplex. Financial details of the transaction were not disclosed. This will be an addition to the firm’s investment in more than $11 billion in over 75 companies across subsectors such as beauty and personal care.
Henkel AG & Co. KGaA Acquires Deva Concepts
Henkel has signed an agreement to acquire Deva Concepts, a high growth professional hair care business. The transaction will strengthen the professional hair care portfolio as a category leader in the curly hair segment. The acquisition is part of Henkel’s strategy to expand their position in fast-growing markets and categories.
LVMH Moët Hennessy Acquires Tiffany & Co.
LVMH, the world’s leading luxury group, and Tiffany & Co., the global luxury jeweler, have entered into a definitive agreement in which LVMH will acquire Tiffany in a transaction with an equity value of approximately $16.2 billion. The acquisition of Tiffany will strengthen LVMH’s position in jewelry and increase its presence in the United States.
Le Holding Angelcare Acquires Edgewell Personal Care – Infant and Pet Care Businesses
Edgewell Personal Care has announced that it has completed the sale of its infant and pet care business to Le Holding Angelcare for $122.5 million. The transaction represents the importance of investment in core brands and new growth opportunities for Edgewell.
WHSmith PLC Acquires The Marshall Retail Group
WHSmith has agreed to acquire The Marshall Retail Group. This is an effort to boost its presence in U.S. airports. The UK company will buy The Marshall Retail Group from Brentwood Associates for $400 million. This will lead to doubling the size of the UK international travel business.
The Blackstone Group Acquires Great Wolf Resorts, Inc.
The Blackstone Group has announced that it will acquire 65% interest in Great Wolf Resorts, Inc. Great Wolf is owner and operator of family-friendly entertainment resorts with 18 locations around the United States. As part of the transaction, Blackstone and Centerbridge will form a new $2.9 billion joint venture to own the company.
2. Cap IQ
The information and views contained in this report were prepared by Harris Williams LLC (“Harris Williams”). It is not a research report, as such term is defined by applicable law and regulations, and is provided for informational purposes only. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities or financial instruments or to participate in any particular trading strategy. The information contained herein is believed by Harris Williams to be reliable but Harris Williams makes no representation as to the accuracy or completeness of such information. Harris Williams and/or its affiliates may be market makers or specialists in, act as advisers or lenders to, have positions in and effect transactions in securities of companies mentioned herein and also may provide, may have provided, or may seek to provide investment banking services for those companies. In addition, Harris Williams and/or its affiliates or their respective officers, directors and employees may hold long or short positions in the securities, options thereon or other related financial products of companies discussed herein. Opinions, estimates and projections in this report constitute Harris Williams’ judgment and are subject to change without notice. The securities and financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions using their own independent advisors as they believe necessary and based upon their specific financial situations and investment objectives. Also, past performance is not necessarily indicative of future results. No part of this material may be copied or duplicated in any form or by any means, or redistributed, without Harris Williams’ prior written consent.
Harris Williams LLC is a registered broker-dealer and member of FINRA and SIPC. Harris Williams & Co. Ltd is a private limited company incorporated under English law with its registered office at 5th Floor, 6 St. Andrew Street, London EC4A 3AE, UK, registered with the Registrar of Companies for England and Wales (registration number 07078852). Harris Williams & Co. Ltd is authorized and regulated by the Financial Conduct Authority. Harris Williams & Co. Corporate Finance Advisors GmbH is registered in the commercial register of the local court of Frankfurt am Main, Germany, under HRB 107540. The registered address is Bockenheimer Landstrasse 33-35, 60325 Frankfurt am Main, Germany (email address: firstname.lastname@example.org). Geschäftsführer/Directors: Jeffery H. Perkins, Paul Poggi. (VAT No. DE321666994). Harris Williams is a trade name under which Harris Williams LLC, Harris Williams & Co. Ltd and Harris Williams & Co. Corporate Finance Advisors GmbH conduct business.