A renewed focus on the home, increased consumer confidence, improving stock prices for potential acquirers, the ready availability of private equity capital, and other favorable end-market dynamics will help drive a renewed period of M&A activity for the household consumer durables industry, according to a report released by the Mergers & Acquisitions group at Robert W. Baird & Co.
These new market dynamics are bringing both buyers and sellers back to the table, according to Jim Case, managing firector and head of Baird's Consumer Products investment banking practice. "We believe the household durables industry is poised to experience a return to the pace of consolidation last seen among suppliers in the 1990s," Mr. Case said in a statement. "The pace of household durables M&A is on track to exceed the number of transactions in each of the past few years."
Baird notes that depressed valuations have kept many sellers on the sidelines for the past few years, even as strategic buyers focused much of their efforts on internal rationalizations and controls. Now, however, improving economic conditions are creating both more attractive business opportunities and higher valuations, bringing buyers and sellers back to the market. With an estimated U.S. $80 billion to $100 billion to invest, private equity firms have again become active buyers as well.
In its report, Baird notes that the household durables industry reported 909 M&A transactions between January 1993 and May 2004, with a peak of 133 transactions in 1998. During this period, the median transaction value was $36.2 million, for those deals with disclosed financial terms. This year to date, there have been 24 transactions with a significantly higher median deal size of $105.3 million, compared to 19 transactions and a median deal size of $44.1 million for the same period last year.
Dynamics such as rewarding of innovation and an improving economy, as well as the blurring of traditional retail channels with the emergence of the "super center," are all magnifying retailer competition, the organization said.
Baird reports that the household durables industry has also been positively affected by several continuing trends:
record levels of homeownership (68 percent) driving demand for new products;
opportunities to enter emerging markets and take advantage of low-cost manufacturing with increased globalization;
the demand for exciting new products, which places a premium on those companies with a proven ability to innovate;
favorable demographics such as the influence of the baby-boomer generation, which typically spends more on home improvement and remodeling than any other group, impacting household product sales;
companies seeking to leverage their brand through licensing arrangements; and
an improving economic outlook, allowing consumers to "trade up" to higher price points.
Over the last 2 years, the S&P 500 Household Durables Index rose 13.2 percent, while Baird's Housewares Universe rose 8.3 percent, significantly outperforming both the S&P 500 Index and the NASDAQ, which rose 6 percent and declined, respectively. The median stock in Baird's Housewares Universe is up 35.7 percent year-to-date.
"As the economy continues to improve, so will industry profitability, resulting in continued price appreciation for consumer product stocks," stated Steven Bernard, CFA, co-author of the report and director of M&A Market Analysis.
to Daily News