Consumer Markets M&A

By: Francois Herman (McGill University), Gurneek Gill (UCL), and Abilash Prabhakaran (MIT)


I. Industry Background

2021 marked the post-pandemic rebound of the Consumer Markets M&A sector, with deal volume growing by 17% compared to 2020 and total deal value growing by an astonishing 34% over the last 12 months. After a significant decline due to the pandemic in 2020, the sector has benefitted from a boom in e-commerce and physical store reopening (although this is now in doubt due to the Omicron variant).

The growth in deal value over the last year is heavily correlated with the increasing role of PE in Consumer Markets. In Q3 of 2021, 22% of Consumer and Retails deals were made by PE firms, accounting for 49% of total deal value. Looking at 2021, most PE-led deals involved the divestiture of assets that other firms were looking to remove from their portfolio. A striking example is the sale of Reebok by Adidas to BlackRock-backed Authentic Brands.

As the industry continues to ride ever-changing consumer trends, 2021 has seen the effects of the pandemic on certain sub-sectors of the industry. Home renovation, healthy lifestyles, and pet-related goods have all been an important focus of diversifying their operations and targeting areas in demand. It remains to see what the future holds for some of these sub-sectors as the pandemic dies-off, however, sustainability and health trends should be treated as long-term changes to consumer behavior.

Moving forward, the Consumer Markets industry will continue to digitize as it has done over the past year. The increase of e-commerce businesses will come at the expense of traditional brick and mortar stores, as it answers for the growing demand for direct-to-consumer business models.

II. Durational Capital Management acquisition of Casper Sleep

On November 15th, 2021, New-York based Private Equity firm Durational Capital Management announced the acquisition of online mattress retailer Casper Sleep (NYSE: CSPR) in a transaction valued at $286 million, equivalent to $6.90 per share, a 94% premium on the share’s closing price on November 12th. Durational will use debt financing led by KKR Credit and Callodine Commercial Finance, LLC to execute the transaction. Casper will now revert to operating privately, only 2 years after their IPO.

Casper started off in 2014 as a direct-to-consumer mattress firm and later expanded to a wider range of sleep-related products. With an initial online business model, Casper now owns dozens of physical stores and sells its products to third-party retailers. Casper’s recent trajectory was marked by significant losses and a lack of company innovation, thus leading to this Private Equity Takeover. The acquisition by Durational paired with a change of CEO will bring much needed capital and strategic guidance for a firm in search of the right business model. Emilie Arel, a former executive at Target, Gap, and more recently serving as the CEO of Amazon subsidiary Quidsi will now take on the responsibilities of CEO.

“We are delighted to announce this transaction with Durational Capital Management that creates immediate and substantial value for shareholders, and allows Casper to move forward on strong financial footing,” – Philip Krim (Casper’s Co-Founder)

This PE-led deal is not an exception, but rather a sign of the growing importance of PE in consumer markets M&A. Indeed, the largest consumer M&A deal of 2021was performed by BDT Capital Partners when they acquired water filtration company Culligan International for $6 billion. A main reason for PE firms looking to expand in the consumer space is the search for stable recurring revenues and more predictable cash flows. Looking at 2022, the presence of PE will continue to grow especially with continued investment in corporate divestitures and innovative business models.

Jefferies LLC acted as the financial advisor to Casper Sleep.

III. Nike acquires RTFKT

On December 13th, 2021, sports retail giant Nike (NYSE: NKE) announced the acquisition of RTFKT, a startup creating virtual sneakers and non-fungible tokens (NFTs). Although the details of the transaction have not been disclosed, RTFKT’s latest valuation established the firm at $33 million, less than 2 years after launching in 2020.

This deal is in line with Nike’s Consumer Direct Acceleration strategic plan as it improves its innovation and technology capabilities in the digital retail space. In addition, Nike has also acquired multiple other companies to accelerate its technological expansion, including predictive analytics firm Celect and data integration platform Datalogue.

As cryptocurrencies, NFTs, and other blockchain related assets are starting to reach consumers and investors, major companies are hoping on the trend. Nike is no different and acquiring RTFKT gives the company a strong foot in this relatively new space. Nike’s reasoning in this deal is clear to see – invest, learn, and expand its own capabilities, while also continuing to grow the RTFKT brand and business. As part of a broader digital transformation of business, Nike is combining its world-renowned expertise in retail and marketing with emerging technologies that are forging a new path for the consumer and retail space.

"This acquisition is another step that accelerates Nike's digital transformation and allows us to serve athletes and creators at the intersection of sport, creativity, gaming and culture," – John Donahoe (Nike CEO)