Harris Williams Consumer Update

Consumer activity has steadily gained steam throughout 2018 as we reach the half way point of the year.  The continued strength in the overall economy, low and declining unemployment, rising wages, and positive consumer sentiment have continued to sustain the strong environment for consumer companies.  While traditional CPG companies continue to adapt to the evolution in the retail channels, the strength of the underlying consumer continues to flow towards businesses that provide experiences, entertainment, services, fitness, and education that improve and enhance the lives of the consumer.   These trends are represented in the four deals we closed this quarter, reflecting the consumers need/desire for outsourced services, continued focus on food safety, desire for unique travel experiences, and continuing to invest in education.

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Valuations Remain Strong In The Consumer Sector

Valuations for consumer companies in both the public and private markets remain at attractive levels.  Following a year of strong valuation growth for public equities in 2017, the market has settled a bit in 2018 as investors work to interpret data points from positive macroeconomic indicators, fluctuating geopolitical rhetoric, moving trade policies, and tightening fiscal policies.  While the result has largely been a net neutral (i.e. valuations are relatively flat from where the year started for public equities), intra-year valuations have seen more volatility than prior years and there has been a divergence of performance in different segments.

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Perhaps more interesting than the overall market performance has been the performance within segments of the consumer market:

Public Company Sector Performance (YTD % Change In Stock Price)

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Consumer M&A Sector Deal Flow Picking Up Steam

As has been the story for the past several quarters, buyers have found fewer shots on goal this year.  While overall deal volume is off slightly, the market seems to be picking up steam over the past few month and overall pitch volume would seem to signal a solid second half of the year.  Given the continued supply/demand imbalance, private company M&A valuations remain at attractive levels and may have even ticked up slightly for the highest quality companies.

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The past 90 days has given us several notable deals in the consumer sector that reflect the changes happening in the broader consumer sector as well as the attractive valuations for premier businesses in their respective sector:

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Public Comparables(1)

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M&A Transactions

Recent North American Consumer M&A1

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1)FactSet