The consumer retail and services vertical approached a nadir through Q2 2024, according to an update from PitchBook.
Looking forward, PitchBook pointed out that the buyout activity is “expected to increase following the Federal Reserve’s (the Fed’s) much anticipated 50-basis-point cut announced in Q3.”
Illustrating this, PitchBook noted in its report that recent months “have brought improved deal activity, especially within nondiscretionary products and services.”
PitchBook data and conversations indicate consumer retail & services deal activity is effectively bifurcated in the present “higher-for-longer” interest rate environment.
PitchBook added in its research report that strategic acquirers have “more latitude to work from strong balance sheets and pass costs on to end consumers while pursuing acquisitions that strategically augment or modernize existing product portfolios.”
On the other hand, PitchBook also mentioned in its research report that financial buyers are demonstrating “reticence due to higher financing costs and unfavorable valuations while dry powder piles up.”
PitchBook’s latest report added that premium assets still “command strong multiples, but all other deals face higher scrutiny, extended diligence cycles, and greater emphasis on a viable path to profitable growth.”
PitchBook further noted in its report that smaller deals “face a relatively favorable landscape with select nondiscretionary subsegments, such as food, beverage, cannabis & grocery; vitamins, minerals & supplements; and pet, faring better than higher-discretion goods, such as apparel.”
According to PitchBook’s latest report and market analysis, “finding targets with the appropriate revenue and profit profile, in addition to finding logical sellers, remains a nontrivial undertaking.”
As stated in the update, buyer-seller misalignment “still exists largely for nonpremium assets while deal valuations generally decline.”
The aggregate PitchBook PE data shows deal activity is proceeding at “half speed ahead.” Green shoots are emerging as 2024 dealmaking “outpaces the preceding year by 12.0%, though exits remain nearly 50% below 2020 to 2021 volume.”
The consumer segment reflects this trajectory, and “the underlying trends, to an exaggerated extent.”
PitchBook has also noted in its comprehensive report that deal activity “contracted by 18.8% YoY in 2023, extending precipitous annual declines since 2021.”
Nevertheless, full-year activity has reportedly “finished 7.6% above the 2017 to 2019 average.”
H1 2024 is pacing slightly behind 2023, indicating the market “is near bottom as the QoQ fluctuations in deal count are shrinking.”
While the vertical outlook thaws, the longer-term landscape “faces nontrivial headwinds, as evidenced by select PE firms rotating away from the sector.”
The research study from PitchBook pointed out that Carlyle, L Catterton, and Blackstone, for instance, have publicly begun to focus “on categories like software as a service and financial services, indicating the bar for acquisitions will remain elevated.”