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Consumer Markets M&A

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

Photo: Hanson Lu (Unsplash)


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)

Looking at this deal and others made throughout the past few years, M&A in the retail and consumer space has often been a means for firms to stay up to date with ever changing consumer trends. As AI and other new forms of technologies continue to emerge, we can continue to expect high deal volumes in the Consumer and Retail M&A with companies pushing for digital integration and transformation. The pandemic has also accelerated these trends with companies turning to M&A rather organic forms of growth.

IV. Coca-Cola acquires Bodyarmor

On November 1, 2021, beverage behemoth Coca-Cola (Coke) (NYSE: KO) announced that it will fully acquire sports drink maker Bodyarmor. The deal values Bodyarmor’s total enterprise value at $8 billion, of which Coca-Cola already owned 15% of equity worth $988 million and will acquire the 85% remainder of equity for $5.6 billion.

The deal is part of new CEO James Quincey’s overall strategy to overhaul underperforming beverages while gaining market share and offering consumers a wider portfolio of products. While Coke had already owned 15% of BodyArmor since 2018, the buyout allows Coke to better capitalize on BodyArmor’s stellar growth, especially as Bodyarmor retail sales are expected to be more than $1.4 billion in 2022, and compete with PepsiCo’s Gatorade drink. While Gatorade controls around 70% of the market for sports drinks, BodyArmor has quickly become the second-largest sports drink, controlling 18% and outpacing Coke’s flagship sports drink Powerade.

Coke’s acquisition will buy out investors, who include James Harden and the late Kobe Bryant. This deal is also Coke’s largest brand acquisition and onboards Bodyarmor co-founder Mike Repole. Repole’s experience in founding Energy Brands, which was acquired by Coke, and also owns VitaminWater and SmartWater.

“Bodyarmor has been a great addition to the system lineup over the last three years, and the company has driven continuous innovation in hydration and health-and-wellness products. We’re excited to bring Bodyarmor into The Coca-Cola Company and work with Mike Repole and his leadership team on the next stage of growth.” - Alfredo Rivera (president of Coke’s North America operating unit).

Bodyarmor’s branding as a healthier sports drink alternative to Gatorade and focus on low calories, no added sugar, and antioxidants is part of a large and growing trend of health-conscious consumers. While Gatorade has led the sports drink market for many years, Bodyarmor, by leveraging Coke’s superior global logistics and packaging and marketing operations, could become a much more serious competitor and be the leading sports drink maker soon.

V. The Hershey Company acquires Dot’s Homestyle Pretzels and Co-Manufacturer Pretzels Inc.

The Hershey Company (Hershey’s) (NYSE: HSY) is acquiring Dot’s Homestyle Pretzels and its co-manufacturer Pretzels Inc., for $1.2 billion to expand its portfolio of snacks.

While Hershey’s has been known for its portfolio of chocolate and confection products, Hershey’s, under CEO Michele Buck’s leadership since 2017, has diversified into a broad array of snacks, including products that are organic and have low or no sugar. Dot's Pretzels was founded over a decade ago as a special snack to be shared with family and friends, and the company has become the fastest-growing pretzel product; Dot’s was responsible for 55% of the segment's growth during 2021. The growth of Dot’s is especially impressive as it grew organically from word of mouth, not much through paid marketing. Thus, the product’s high quality ensures that Hershey’s has acquired an already stable and loved brand that can be marketed more effectively by Hershey’s.

"This is definitely a growth play for us. They really caught our attention because their growth has been tremendous in the past year." - Michele Buck (Hershey's CEO).

Dot's and Pretzels had net sales of about $275 million for the 12 months ended September 2021, and Heshey’s believes that these two acquisitions will be accretive.

Buying Dot’s co-manufacturer also provides Hershey’s greater control over the supply chain, which it can integrate with its much larger operations.

The acquisition of Dot’s allows Hershey’s to be more diversified and expand into offering healthier alternatives than its standard chocolate and confections. Thus, the deal opens opportunities for cross-selling and entering new markets.

VI. Future Outlook

M&A activity is expected to be strong in 2022.

Despite headwinds including the Omicron variant, inflationary pressures, increased interest rates, and potential supply chain issues, consumer spending will be strong and adjust for the new ways of living and working due to the pandemic. Increased vaccination will also help consumers go outside more and buy more products. Thus, it is expected that there will be strong M&A activity in 2022.

Every quarter over the last year, deal volume has been consistently decreasing even though deal value increased; thus, in the short-term, it is expected that there will be larger and more concentrated deals as companies and PE firms consolidate consumer businesses.

Additionally, in the food and beverages space, health-conscious consumers’ strong demand for healthy alternatives will encourage new startups to create healthier products, and many established businesses will continue to adapt to this growing trend through M&A. Finally, while the interest in NFTs has been very recent, it is expected that more businesses will continue to acquire NFT-related businesses and undergo more digital transformation to keep up with rapidly evolving consumer trends.



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