Marking Time: Q3’23 M&A trends in consumer and retail

M&A activity in C&R all but came to a screeching halt in Q3 of 2023 in terms of volume flow, with quarterly transactions hitting their lowest number since the first quarter of 2020. While many potential buyers and sellers remained on the sidelines, several strategic C&R corporate buyers and private equity firms continued to seek opportunities amidst a lull in M&A activity due to an uncertain economy. Dealmaking has been challenged by concerns over interest rates, faltering consumer confidence, and banks reluctant to lend to all but the best companies. While it is hard to see light at the end of the tunnel in the C&R sector, and several headwinds continue to discourage M&A activity, there are also some tailwinds in the economy, including real wage growth and an active labor market with unemployment below four percent. Still most firms are remaining on the sidelines waiting for better valuations and expect the bottom to come some time in 2024.

In the meantime, here are some key recommendations to C&R dealmakers:

• Consider synergistic deals: Pursue complementary add-on businesses in slow growth environments to achieve cost savings, boost leverage, and enhance future growth. Alternatively, consider divesting non-core segments to streamline and grow your core business.
• Follow consumer trends: Anticipate new consumer values that are shaping purchasing behavior in a post-pandemic, high-interest-rate environment marked by inflationary pressures. Adapt to the preferences of today's shoppers, such as off-price retailers and private-label products.
• Prioritize solid business fundamentals: Focus on high-quality companies that can withstand the challenges of higher interest rates and lower valuations. Avoid being swayed by extremely low valuations by sellers desperate to exit, and always seek long-term value in potential investments.

Successfully managing the complex C&R M&A environment calls for a well-informed, well-planned strategy. Download our paper for a detailed examination of trends in the C&R sector and strategies that can help you capitalize on investment opportunities.