Sustained Consumer Demand for Outdoor Recreation Drives Robust Dealmaking Environment
Capstone Partners, a leading middle market investment banking firm, released its April 2022 Outdoor Recreation & Enthusiasts Sector Update, reporting that heightened interest in outdoor pursuits has continued through early 2022, fueling what is shaping up to be another strong year for the Outdoor Recreation & Enthusiasts sector. The sector emerged as a standout in the Consumer industry during the pandemic, attracting droves of new customers and repeat buyers with a newfound appetite for enthusiast activities and more active lifestyles. Retention of this broadened customer base has been a key focus among sector players, with effective inventory management and pricing actions at the forefront of executives’ priorities amid elevated inflation and supply chain challenges. Privately owned middle market companies with brand strength, robust direct-to-consumer (DTC) capabilities, and efficient supply chains are poised to capture valuable revenue opportunities through 2022.
The robust dealmaking environment in the Outdoor Recreation & Enthusiasts sector has continued through early 2022, with 34 transactions announced or completed year-to-date (YTD) slightly below the record setting pace experienced in 2021. Healthy valuations, aggressive competition in deal processes, and significant levels of private equity dry powder have created a favorable backdrop for privately owned businesses pursuing a liquidity event. Supply chain disruptions have challenged business owners, with many unable to fulfill sales orders due to constrained production. Effective inventory management has proven to be a key focus for sector players, which is often looked upon favorably by potential buyers in a merger and acquisition (M&A) process. In addition, the current inflationary environment is expected to persist in the near term, placing heightened importance on proper pricing adjustments to maintain margins.
Through YTD 2022, private strategic buyers have comprised the majority of M&A activity, accounting for 61.8% of total deals. In addition, large players in the Consumer space are increasingly pivoting their product portfolios to gain more exposure to the Outdoor segment.
“We are seeing rapid changes in the M&A markets for Outdoor Recreation brands and retailers due to a wholesale shift toward outdoor lifestyles and “mini excursions.” The focus in M&A is moving toward essentials of enthusiast pursuits and away from big ticket discretionary items. This is noted by the acquisitions of Osprey Packs for 13.5x EBITDA and Dorel Sports biking division for 11.3x; while Yeti, Thule, and Clarus are all trading publicly at over 13x EBITDA. In contrast, Malibu Boats is trading at 5.8x and MasterCraft at 5.4x. This comes against a backdrop where many brands are struggling with inflationary pressure on inputs and supply chain problems. One thing is becoming apparent, higher gross margin brands will become even more valuable to buyers in this environment. Our recreation deals in the market during the first quarter have been well received and is a strong indication that the M&A markets remain very strong for outdoor goods,” said Capstone Managing Director Ken Wasik, the lead contributor in the newly released report.
Also included in this report:
- Drivers of premium M&A transaction multiples for middle market businesses
- Banker commentary on relevant sector transactions
- Breakdown of the most active segments in the Outdoor Recreation & Enthusiasts sector
Introducing The ReCap
For additional insights on this report directly from Capstone’s Head of Consumer Investment Banking, Ken Wasik, watch the inaugural episode of The ReCap—a new video series where Capstone’s senior investment bankers address important market updates and top-of-mind concerns among business owners, investors, and acquirers in the middle market.
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