- COVID-19 uncertainty and the impact from emerging variants
- Supply chain disruptions in acquiring materials and finished goods from abroad
- All-time high container rates on oceanic shipping
- Price increases on raw materials
- Labor shortages and wage rate increases
Food and beverageExcluding Q1 2019, M&A activity within the food and beverage subsector remained relatively robust considering the economic and COVID-19 headwinds presented in the markets driven by better-for-you products, convenience and customer connectivity. Last year, large multinational corporations continued to reevaluate their brand strategy to ensure differentiation of their product offerings to meet evolving consumer dynamics. As a result, the year saw divestitures of larger household brand products which were used to free up capital and invest in newer brands. To continue to be attractive to potential investors, middle market companies will need to demonstrate strong consumer connectivity, the ability to meet consumers where they are through at-home delivery and subscription service plan options, as well as focus on healthy food and beverage offerings. Additionally, premium brands that were able to maintain margins during these challenging conditions will continue to attract investors.
Consumer goodsConsumer goods companies were most affected by supply chain challenges, particularly from elevated shipping rates in the second half of the year which more recently have begun to fall from record levels last summer. The impact of pricing challenges was evidenced by a decline in closed transactions of roughly 14% in the fourth quarter, which followed a 23% decline in the previous quarter from the high mark in the second quarter. Companies that are taking advantage of COVID-19-driven trends, including working from home and recreational activities, have been attractive to investors. Further, the sector also benefitted from higher pet ownership and other macro trends driving investment in the pet subsector. As with food and beverage companies, those companies that have demonstrated the ability to protect margins were able to better ease inflation uncertainty.
Retail and restaurantRetail and restaurant deal activity began last year with a focus on capital infusions and opportunistic buying from well-placed market participants. Much of the M&A activity throughout the year focused on a roll-up strategy for distressed assets or existing market investors doubling down, with interest in QSR, or quick service restaurant, assets being particularly strong. The industry continues to be affected by labor challenges, pricing pressures and change in channel mix. But COVID-19 and the related restrictions accelerated acceptance of disruptive technology that reduced friction with customers. This further separated market-leading companies. Of the investments, buy online pickup in store (BOPIS) and home delivery services were frequently cited as key drivers of outperformance.
Key fourth-quarter transactions
- Helen of Troy acquired Osprey Packs, Inc., an outdoor backpack, luggage and travel accessories manufacturer, in late December.
- Middleby Corporation acquired outdoor grill companies Masterbuilt Holdings, as well as Char Griller in December.
- Diamond Pet Foods, Inc. acquired J.M. Smucker Co.’s private label dry pet food business in December 2021.
- Restaurant Brands International acquired Firehouse Subs, an owner and operator of restaurant chains throughout the U.S., in December.
- Blackstone Growth announced it acquired a majority share of Supergoop, a protective skincare brand, in December.
- Femtec Health acquired Birchbox, a subscription service beauty brand, and Mira Beauty, a digital platform used by consumers to customize and personalize individual searches for beauty products, in October and November respectively.
- Freeman Spogli acquired WhiteWater Express Car Wash, a multi-state operator of single tunnel express car washes, in December.