Apparel, Footwear & Accessories Market Update: M&A Market Persists At Rapid Pace Despite Macroeconomic Headwinds

Buyers Demonstrate Sustained Interest, Sellers Move to Capitalize on Favorable Valuations

Capstone Partners, a leading middle market investment banking firm, released its June 2022 Apparel, Footwear & Accessories Sector Update, reporting that supply chain disruptions, elevated inflation, and rising interest rates have severely challenged the Apparel, Footwear & Accessories space—materially impacting the gross margins of many sector participants. Despite macroeconomic headwinds, sales have continued to flow to the sector. 

Middle market private companies and large public multinational players have increasingly examined fortifying their production processes, with the reshoring of supply chains a top agenda item for many executives. While reputable brands often hold pricing power, freight costs have substantially cut into profitability levels, reducing the effectiveness of higher sales prices. In addition to supply chain strength, effective inventory management has been critical for sector players over the past 12 months as many businesses have missed sales opportunities due to a lack of product availability. Ordering products in bulk rather than employing just-in-time inventory systems has helped to alleviate some of these challenges. 

Merger and acquisition (M&A) activity in the Apparel, Footwear & Accessories market has persisted at a robust pace through year-to-date (YTD) 2022 with 61 transactions announced or completed. Despite macroeconomic headwinds, buyers have demonstrated sustained interest in the sector, with sellers capitalizing on a favorable valuation environment. Strategic buyers have led deal activity in 2022, accounting for 67.2% of total transactions. Premium products with a loyal customer base have served as attractive targets for sector players looking to bolster their product portfolio. Private equity firms have historically trailed strategics in sector M&A activity, a trend that has continued in 2022, with financial buyers comprising 32.8% of total transactions. Brands providing apparel and accessories for high growth segments such as Outdoor & Recreation have drawn robust sponsor interest. Many of these brands have experienced strong revenue growth as consumers have increasingly pursued outdoor activities. 

“With prospective acquirers placing a premium on profitability over top line growth, private business owners would do well to evaluate their cost structures for potential efficiency gains,” said Director Jesse Betzner, a lead contributor in the newly released report. 

Also included in this report:  

• Key challenges business owners are facing and the solutions to mitigate these issues
• Commentary on M&A activity through Q1 2022
• Insight into M&A purchase multiples for middle market companies