December 01, 2014

Consumer Products Industry Highlights

  • The U.S. Consumer Products (“CP”) industry is poised for continued growth in 2014 as the economy continues its slow and uneven, but steady expansion. A small but influential segment of the population continues to drive positive growth within the premium segment, while the mass market remains mixed with certain consumers sustaining financial pressure and others focusing on value brands and more essential items.
  • Industry M&A activity remains strong, with strategic and financial buyers continuing to seek quality targets to enhance market, geographic, and channel reach; brand diversification; and product portfolio strength. Acquirers are also seeing opportunities to better compete and increase returns in an ever changing retail climate that includes more price conscious consumers, higher production costs, and an increasing consumer focus on specialty and online retail channels.
  • Apparel, footwear, and accessories providers are beginning to benefit from pent up demand from the recession and a surge in demand for luxury goods from select consumers segments. Manufacturers are increasingly investing in men’s clothing and plussize apparel – two markets expected to experience outsized growth. Sportswear, athletic footwear, and outdoor footwear markets are also expected to experience strong growth with consumers being more active and health conscious.
  • The durable consumer goods sector is benefiting from a resurgence in real estate markets as consumers continue to demand furnishings, appliances, and related essential to fill their homes. The outlook for the appliances and housewares industry remains notably strong in the U.S. relative to international markets. However, demand for more discretionary home products (such as big ticket consumer electronics) remains mixed, yet strong demand continues for select personal electronics and peripherals for music and home entertainment.
  • The recreational and sporting goods sector is expected to continue to improve, albeit at a slower rate compared to certain other CP markets. Growth is expected to be tapered by low growth in personal income and discretionary spending.
  • The personal and household products sector remains stable with consumers continuing to purchase highly consumable staple goods,yet with an increasing focus on value prices.

2013 M&A Volume by Sector

2013 M&A Volume by Sub-Sector

M&A Volume & Valuations - Consumer Products

Enterprise Value/EBITDA

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Consumer Products Industry M&A Activity
M&A Activity by Sector

  • M&A activity across the Consumer Products industry remains strong, with total annual volume increasing 15.8% over the last five years, from 278 announced M&A transactions in 2009 to 322 transactions in 2013.
  • The largest increase in M&A activity occurred in 2012, in part due to a number of transactions being “fast tracked” for completion that year in light of the then more uncertain political and tax environment. A number of transactions completed in 2012 may have otherwise been consummated in 2013.
  • Industry M&A activity was lower in 2013 compared to 2012 due to this dynamic. However, industry M&A activity continues to grow at a steady pace, and a number of strategic and financial buyers remain highly active and on the lookout for high quality targets with compelling investment fundamentals and growth prospects.
  • Demand for acquisition targets continues to be supported by favorable financing markets and improved balance sheets.
M&A Activity by Sector

Sector Trends – 5-Year History

  • The Sporting & Recreational Goods sub-sector has experienced the greatest recovery in M&A volume, increasing at a Compound Annual Growth Rate (“CAGR”) of 9.7% from 2009 to 2013, primarily driven by increased activity within the sporting goods sub-segment, as well as select recreational sub-segments such as children’s toys and games.
  • The Apparel, Footwear & Accessories sub-sector has also experienced strong recovery, with M&A volume increasing at a CAGR of 4.9%, buoyed by increased sales activities within specialty apparel and footwear retail channels versus the department stores channel.
  • The Durable Consumer Goods sub-sector has exhibited stable growth in M&A volume, increasing at a CAGR of 2.9%, supported by favorable real estate markets.
  • The Personal & Household Products sub-sector (i.e., staple consumer goods sector) has exhibited slight growth in M&A volume, increasing at a CAGR of 1.2%. This slower growth is in part due to the fact that demand for staple products has been relatively less volatile throughout the recession compared to demand for discretionary products.

5-Year M&A Activity Growth by Sector

Sub-Sector Trends - 5-Year History

Macroeconomic Indicators

  • Gross domestic product has recovered with positive growth achieved over the past 10 quarters, and is expected to continue over the next several years. The Institute for Supply Management Purchasing Managers’ Index (“PMI”), an indicator of the economic health of the manufacturing sector, has expanded. Consumer confidence has gradually improved since 2009, while the unemployment situation has experienced a similar trend.
  • Both housing starts and existing home sales have experienced recent gains after several years of flat to declining performance, which should have a positive impact on the overall economy.
  • Interest rates are expected to remain at historically low levels for the next several years, which is expected to have a favorable impact on M&A transaction financing.
  • Inflation has maintained a relatively consistent level between 1% and 4% since the downturn.

GDP Growth

Purchasing Manager's Index

Federal Funds Rate

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Unemployment & Consumer Confidence

Housing Statistics

Inflation

Retail Sector Growth vs. S&P 500

U.S. Retail Sector Growth by Format

Public Companies Analysis - Consumer Products

Select M&A Transactions by Consumer Products Sector