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The median PE buyout size in consumer products is heading for a decade high

Adam Putz

Private equity's track record in retail has come under some hefty scrutiny of late. And buyout shops are taking the hint. At just over 40 deals closed through 1H, PE firms are set to complete the fewest retail transactions since at least 2013, per PitchBook data.

Although the headlines are hard to ignore, it's important to point out that financial sponsors have also helped brick-and-mortar operations in the middle market with the adoption and expansion of digital strategies. This development has been a boon to retailers. Increased investment in digital technologies has made operations more efficient, boosting sales and blending the customer experience online and off.

As a result, some PE firms are finding bright spots in the still-competitive US consumer market, with many omni-channel businesses not only maintaining margins in the face of secular stagnation, but also commanding higher valuations. This dynamic has contributed to the persistent strength of median deal values even as activity cools off.

 

Digital strategies can provide retailers with valuable metrics on essential data points like customer acquisition costs, which help improve performance. Moreover, marketing campaigns waged across channels have given middle-market retailers an outsized opportunity to track consumers from engagement through purchase in a manner reminiscent of larger rivals. An essential element here has been the swift adoption of direct-to-consumer distribution models by those with a conventional retail presence. Case in point? Cosmetics. And demographics are on their side.

Meanwhile, the strongest brands in the middle market remain far more agile than the competition when it comes to addressing nearer-term trends. And this nimble footing surely suits the shorter holding periods of PE firms.

Featured image via MasaoTaira/iStock/Getty Images Plus

This column originally appeared in The Lead Left
 

Read more about the retail space in our 2Q 2019 US PE Breakdown.