Signs of Slight Optimism Lurking Back into the Consumer M&A Markets

Since Q1 2023, middle-market investors have demonstrated to still have an appetite for M&A activity. While interestrates and inflation continue to prompt industry concerns, according to recent surveys, business owners’ anxiety levels have begun to dip. Overall sentiment seems to be improving with an increasing number of owners expecting conditionsto improve over the next six months. According to the National Federation of Independent Business, the net percent ofowners raising average selling prices decreased three points to a net 29%, still a very inflationary level but the lowest reading since March 2021. While supply chain issues have subsided, 14% of owners recently reported that supply chaindisruptions are still significantly impacting their business. Another 28% reported a moderate impact while 42% reported a mild impact. Furthermore, despite continued headwinds, consumer sentiment has experienced an uptick bouncing from 85.5 in June 2021, to 50.0 in June 2022 and to the latest reading of 64.4 in June 2023. This slight improvement inconsumer sentiment has also spilled into the M&A universe.

In Q2 we have seen greater receptivity to new deals entering the market. While the number of transactions and valuations are down YoY, we have seen consumer investors increase the number of opportunities they are willing to diligence and review. Valuations, however, continue to experience downward pressure, as demonstrated by WHP Global’s acquisition of Bonobos and JD Sports purchase of Groupe Courir for less than 1.0x revenue. Consumer product companies that continue to demonstrate strong growth (25%+) and EBITDA margin (15%+) have continued to attract a solid level of interest from the market. While valuation levels and financial performance were not disclosed, the announced transaction by outdoor brand Stio with Lago Innovation and the investment in Europa Eyewear by Blue Point Capital are great examples of strong performers continuing to receive interest from the market.

If you are interested in learning more about the latest market conditions or potential options for your business, please do not hesitate to contact our team.