Despite Volatility and Uncertain Economic Outlook, M&A Activity in the Home Goods Market Continues at Healthy Pace
Capstone Partners released its July 2022 Home Goods Market Update, reporting that elevated inflation, supply chain disruptions, and a more cautious consumer have moderated the near-term growth outlook in the Home Goods space in the first half of 2022. The sector experienced explosive demand through much of 2021 with personal consumption expenditures on furnishings and durable household equipment rising 20.3% year-over-year (YOY), according to the U.S. Bureau of Economic Analysis. Consumer demand remains healthy, with expenditures in the category rising 3.3% YOY in April. However, this is far from the growth rate that characterized much of the past several quarters when spending registered double-digit percent increases from June 2020 through December 2021.
Moving through the second half of 2022, home goods sales will be largely dependent on the health of consumer finances. Sales comparisons to the prior year will prove difficult as many product providers and retailers recorded a boon in performance in 2021 on the heels of stimulus checks and heightened e-commerce adoption.
Merger and acquisition (M&A) activity in the Home Goods sector has continued at a healthy pace, rising 15% YOY through year-to-date (YTD) 2022 with 53 transactions announced or completed, despite volatility in public markets and an uncertain economic outlook. Notably, YOY volume growth in the sector has outpaced growth in the broader Consumer industry which has experienced a 5.5% decline YOY. Inflation will remain a key headwind to the operating performance of sector players, as the Federal Reserve contemplates the level of additional interest rate hikes. Higher financing costs could place downward pressure on transaction volume and valuations, particularly for large scale leveraged buyouts. While the broader M&A market has slowed from the fervent dealmaking pace seen in 2021, there remains healthy consolidation interest from sector participants for quality home goods providers.
Also included in this report:
- Commentary on how strategic buyers have fueled deal activity through 2022.
- How sector players have altered inventory and supply chain processes.
- Insights and outlooks from Capstone’s Head of Consumer Investment Banking.
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