Capstone Partners Reports: Consumer M&A Market Prepares for a Rebound in 2024

Rhea-AI Summary

Capstone Partners releases its 2023 Annual Consumer M&A Report, highlighting consumer spending trends, M&A activity, and outlook for 2024. Personal savings increased 46.4% YOY, leading to strong GDP growth. Services spending outpaced goods spending in 2023, impacting M&A markets. The report discusses the Federal Reserve's monetary policy and predicts a robust Consumer dealmaking market in 2024.

Insights

Economist

The discussion of consumer balance sheets and their resilience amidst high inflation and tight monetary policy is indicative of underlying economic strength. The increase in personal savings by 46.4% YOY, despite being from a low base, suggests a potential buffer against economic downturns. The GDP growth of 3.3% YOY, surpassing estimates, further supports this view. The shift towards service spending, growing at 7.4% YOY, reflects a change in consumer behavior, possibly driven by a release of pent-up demand post-pandemic and a transition back to experiential spending.

From an economic standpoint, the report hints at a more accommodating debt market in the near future, which could influence consumer spending and M&A activity. The labor market and interest rate policy are key factors to watch as they can significantly impact consumer spending power and business investment decisions. The report's anticipation of a 'soft-landing' scenario by the Federal Reserve, avoiding a severe recession, is a positive signal for economic stability and could lead to increased investor confidence in consumer-driven stocks.

Market Research Analyst

The insights on sector-specific M&A activity, particularly the YOY increases in Food-adjacent sectors and Home Goods, reflect changing consumer priorities and market opportunities. The report's implication that these sectors outperformed others could guide investors towards companies with a strong presence in these areas. The anticipated buyer appetite and a potential bull market in Consumer dealmaking for 2024, as mentioned by Ken Wasik, suggest an optimistic outlook for the Consumer industry.

Understanding which sectors are poised to garner buyer interest is important for investors looking to capitalize on industry trends. The report's breakdown of the 12 key consumer sectors provides a detailed landscape of the industry, enabling investors to make informed decisions based on sector performance and M&A prospects. This information is particularly valuable in identifying growth areas and assessing the potential for strategic investments or acquisitions.

Financial Analyst

The reported resilience of consumer balance sheets in the face of inflation and the shift in spending patterns have implications for the stock market. The stability of consumer demand is a positive indicator for the revenue streams of companies within the Consumer sector. This could result in upward revisions of earnings forecasts and potentially lead to a re-rating of consumer stocks. The report's indication of an easier monetary policy environment could lower borrowing costs, encouraging business expansion and potentially leading to higher stock valuations.

Investors may find the report's insights on public market valuations and the performance of specific sectors within the Consumer industry useful for portfolio allocation. The identification of outperforming sectors could signal areas where stock performance may exceed the broader market, offering potential investment opportunities. The visibility over interest rate direction mentioned by Wasik is also significant, as it affects consumer borrowing costs and can influence stock market trends.

BOSTON, March 20, 2024 /PRNewswire/ -- Capstone Partners, a leading middle market investment banking firm, released its 2023 Annual Consumer M&A Report, which shares insights into public market valuations, the macroeconomic climate, merger and acquisition (M&A) activity, and an outlook for 2024 industry activity. With extensive knowledge and transaction experience, Capstone Partners' Consumer Investment Banking Team provides unique commentary on 12 key sectors: Apparel, Footwear & Accessories; Automotive Aftermarket; Beauty; Convenience Stores; E-Commerce; Food Processing; Food Distribution; Home Goods; Outdoor Recreation & Enthusiasts; Pet; Sports Technology; and Vitamins & Supplements.

The discussion of "fortress" balance sheets is often in the context of leading multinational banks and asset management institutions. The concept alludes to creating a highly liquid asset profile that can withstand financial shocks while being able to deploy capital to fund spending pursuits. In 2023, U.S. consumer balance sheets were expected to wither under elevated levels of inflation and a tightened monetary policy environment—however, the level of excess savings and spending power continued to be underestimated. Consumers demonstrated a willingness and capacity to spend on goods and services throughout the year, while market participants continued to miss the mark on when consumer savings would be depleted. Notably, personal savings increased 46.4% year-over-year (YOY), albeit, compared to near historically low savings levels experienced in 2022. This culminated in Q4 gross domestic product (GDP) surging past consensus estimates, increasing 3.3% YOY, according to the U.S. Bureau of Economic Analysis.

In 2023, the economy witnessed a substantial shift in spending that heavily favored the Services segment. Personal consumption expenditures on services increased 7.4% YOY, over double the YOY growth experienced by goods spending (3.3%). This marked the widest difference of services spending growth over goods spending growth since 2009. Areas such as Recreation Services, Food Services & Accommodations, and Housing & Utilities Services exceeded overall growth in services spending. Evidence of this trickled into M&A markets, with Food-adjacent sectors and the Home Goods space registering YOY increases in total M&A transaction volume.

It remains to be seen if the Federal Reserve can start their victory lap on achieving the heralded soft-landing scenario that dominated headlines throughout the year. At the conclusion of 2023, it seems the U.S. economy has avoided the drastic recession that many market participants had anticipated. Federal funds futures are no longer overwhelmingly pricing in March rate cuts, but directionally, there is clear visibility that the economy is entering an easier monetary policy environment. In the coming quarters, reported earnings among Consumer players will provide insight to the demand backdrop and how resilient spending has remained. In 2024, the labor market, interest rate policy, and the balance sheets of consumers will remain key aspects of the economy monitored by business owners, economists, and M&A market participants. 

"For the first time in months the market has visibility over the direction of interest rates. The cost of money will still be meaningful, but debt markets are expected to be much more accommodating over the next six to 12 months than the preceding period. For privately-owned businesses contemplating a liquidity event—2024 will bring significant buyer appetite and may usher a new bull market in Consumer dealmaking," said Capstone's Head of Consumer Investment Banking Ken Wasik, the lead contributor in the report.

Also included in this report:

• How M&A volumes and public market valuations in the Consumer industry fared in 2023.
• Which sectors outperformed the broader Consumer industry and are poised to garner buyer interest in 2024.
• What trends are driving M&A activity across the Consumer industry and a breakdown of each of the 12 highlighted sectors.

To access to full report, click here.

ABOUT CAPSTONE PARTNERS

For over 20 years, the firm has been a trusted advisor to leading middle market companies, offering a fully integrated range of investment banking and financial advisory services uniquely tailored to help owners, investors, and creditors through each stage of the company's lifecycle. Capstone's services include M&A advisory, debt and equity placement, corporate restructuring, special situations, valuation and fairness opinions and financial advisory services.  Headquartered in Boston, the firm has 175+ professionals in multiple offices across the U.S. With 12 dedicated industry groups, Capstone delivers sector-specific expertise through large, cross-functional teams. Capstone is a subsidiary of Huntington Bancshares Incorporated (NASDAQ: HBAN).  For more information, visit www.capstonepartners.com.

For More Information Contact:

Ken Wasik
Managing Director, Head of Consumer Investment Banking
917-434-6124
kwasik@capstonepartners.com

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SOURCE Capstone Partners

FAQ

What is the main focus of Capstone Partners' 2023 Annual Consumer M&A Report?

The report focuses on consumer spending trends, M&A activity, and the outlook for 2024.

How much did personal savings increase year-over-year in 2023?

Personal savings increased by 46.4% year-over-year in 2023.

Which sector experienced the highest growth in services spending in 2023?

Recreation Services experienced the highest growth in services spending in 2023.

Who is the lead contributor in the report?

Ken Wasik, the Head of Consumer Investment Banking at Capstone Partners, is the lead contributor in the report.

What is expected for the Consumer dealmaking market in 2024 according to the report?

The report predicts a significant buyer appetite and a potential new bull market in Consumer dealmaking in 2024.