Elevated Consumer Appetite for Outdoor Pursuits Proves Resilient
Capstone Partners released its August 2022 Outdoor Recreation & Enthusiasts Sector Update, reporting that the surge in outdoor participation and enthusiast pursuits amid the pandemic has proven to be more than a temporary boost to sector demand. Spending on outdoor goods has persisted at healthy levels, despite inflation reaching a four-decade high of 9.1% in June, according to the U.S. Bureau of Labor Statistics.
The merger and acquisition (M&A) market remains robust for quality, premium brands with strong customer retention and a track record of defensibility during challenging economic environments. Transaction volume through year-to-date (YTD) has declined 24.2% year-over-year (YOY), although 2021 represented the best year on record for M&A in the sector—making for a difficult comparison. When compared to 2020 and 2019, YTD deal volume has outpaced both years by 15.5% and 4.3%, respectively. Inflation and economic uncertainty are likely to negatively impact the volume of large corporate transactions and buyouts, but the middle market (under $500 million in enterprise value) continues to demonstrate robust buyer appetite. Business revenue profiles will be increasingly scrutinized through the lens of a downturn, particularly if driven by a large ”COVID bump.”
Strategic buyers have led YTD transaction activity and accounted for 73% of total M&A volume. Private strategic buyers have comprised a significant portion of dealmaking at 58%. GSM Outdoors has continued to add to its brand portfolio, acquiring Buckeye Lures, a leading player in the Tackle market, in July for an undisclosed sum. Strategic buyers are expected to continue to pursue high quality businesses that complement or diversify existing product offerings. Private equity has continued to add sector companies to their portfolios and comprised 27% of YTD transaction volume. Rising interest rates, while still historically low, are likely to make leveraged buyouts more expensive for private equity groups. However, smaller add-ons serve as a valuable means to expand sector penetration and drive incremental returns.
“Outdoor Recreation, along with Food, continues to be a bright spot in the Branded Consumer sector. A sign of its healthiness is that almost three quarters of all M&A activity is with large strategic buyers. These buyers are making long term strategic acquisitions and it is a testament to their outlook of the future. On the other hand, several private equity firms have built platforms in the space and are actively seeking add-on acquisitions for size and diversity. We like the online and specialty dealer channels the best, with large box retailers having difficulties with the sector,” said Capstone Managing Director and Head of Consumer Investment Banking Ken Wasik, the lead contributor in the newly released report.
Also included in this report:
- Analysis of M&A valuations broken down by sector and key drivers of premium multiples.
- Spotlight on the ongoing consolidation of independent bike shops and recreational vehicle dealerships.
- Insights and commentary from Capstone’s senior bankers on notable transactions and sector trends.
Insights for Middle Market Leaders
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