What areas of consumer and retail will see heightened deal activity in 2024?
Douglas Trauber: I think you’ll see additional counteractions to some of the deals we’ve already seen. For the differentiated grocer, how can I get more boxes? For those that want to grow regionally, where can I acquire?
Convenience would follow the same pattern. Cents per gallon margins have been high for several years. It’s driven significant cash flow. It’s allowing regional players that are strong to think about whether now might be a better time to sell. We’re going to see continued consolidation in those two most fragmented sectors.
A third category is the fallen angels. Pre-covid we had a prolific period of IPOs in ecommerce companies – mostly easier to build, less capital-intensive, apparel-oriented. As we get seasoned market values, I think you’ll see more in that space on the corporate side as well.
Hugh Paisley: For corporates, there’s greater focus and certainty on the areas where they need to win, and an honest assessment of what’s not consistent with those objectives. We saw a number of disposals in 2023 and we expect a continuation of that.
We also expect greater focus on investing behind the core, in capabilities or in categories. We see the need for synergies to drive additional cash flow, to increase investment.
“Cents per gallon margins are high… it’s allowing strong regional players to think about sale”
Douglas Trauber, Global Head of Consumer and Retail
How is antitrust scrutiny affecting the market?
Trauber: The scrutiny in this administration is heightened. Companies that we talk to have two issues. They’re not entering deals because they see the scrutiny, and because unless it’s absolutely synergized and required, they don’t want to wait 12 to 18 months for a deal to close.
Larry Grafstein: The DOJ and FTC sometimes apply stricter scrutiny to high-profile companies. We saw recently the JetBlue-Spirit merger: the challenge to the deal was upheld by the court, and one of the parties has even said they might have to do a restructuring as a result.
“Companies are not entering deals because they don’t want to wait 12 to 18 months for a deal to close”
Douglas Trauber, Global Head of Consumer and Retail
What are the prospects for private equity deals to rebound in 2024?
Vito Sperduto: In 2023 corporates took advantage over private equity firms, which had capital constraints from a financing market availability perspective. We saw corporates pursue some transactions where they didn’t have as much competition. Do you see the private equity firms having pent-up demand in terms of capital to put to work in your sector?
Trauber: There’s a lot of capital on the sideline in private equity. There are big consumer-focused groups looking across the space. I think for the most part, they are focused on growth areas where they have an exit.
Paisley: Where we’ve seen financial sponsors play consistently is where there are multi-unit growth stories: companies with proven economics, ability to transport and replicate at scale, and white space to grow. A lot of those investments in 2023 required just equity checks and very little debt.
In terms of exits, we see a higher bar now in terms of the size of the company that can go public. There’s a lot of smaller companies that recognize that their exit is no longer an IPO and that they may need to consolidate to eventually access public markets.
“A lot of smaller companies recognize their exit is no longer an IPO and that they may need to consolidate”
Hugh Paisley, Co-head of U.S. Consumer and Retail Investment
Grafstein: In consumer and retail, you always have some new concepts that are being financed by growth capital, some of which manage to very quickly become trendy and more valuable. Those companies have to really calibrate the difficulties with the IPO market right now and think about their medium and long-term ability to grow.
“Companies have to calibrate the difficulties with the IPO market right now and think about their ability to grow”
Larry Grafstein, Deputy Chairman, Global Investment Banking
What impact will the U.S. election and geopolitical tensions have on transactions?
Trauber: Our corporate clients expect potential heightened tensions between China and the U.S. post-election. We can see what’s happened before, which is tariffs, and how that affects imports from China and investment in the U.S.
Paisley: There are certain IPO windows for retailers. As you start to enter Q4, it becomes tricky; that’s only magnified by the fact that there’s an election. We’re also seeing geopolitical shocks, for example in the Red Sea, and what that can do in terms of potential delays and higher cost on container shipments.
But if you have a business and you’re looking to monetize, you’ve just gone through three years of COVID-related volatility, and now you see that the world continues to be volatile, you maybe see that ideal window may or may not exist – and this is now the new reality.
“Corporates expect potential heightened China-U.S. tensions post-election”
Douglas Trauber, Global Head of Consumer and Retail Investment
