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Key Themes from Private Consumer Company Discussions

Global Consumer, Technology & Services Conference

Baird's Global Consumer Investment Banking team recently hosted a private consumer company track within its annual Global Consumer, Technology & Services Conference. The two-day, virtual event featured 28 presenting companies and more than 400 meetings between companies and investors.

Several key themes dominated the presentations and Baird facilitated discussions between companies and investors. Highlights include:

The Overall Macro Outlook Remains Unchanged

  • Consumer discretionary demand is broadly decelerating as pressures continue to weigh on lower-income households.
  • Deceleration appears orderly and pockets of strength remain; engagement remains high for innovation, creating room for “winners” even in a challenging backdrop.
  • Stabilization was a key theme and we see outsized interest in durable growth stories and distinctive brands.

Total Addressable Market (TAM) Is the Critical Diligence Item

  • Investors are laser-focused on TAM and understanding organic company growth from a whitespace and logical adjacency perspective (both nationally and internationally).
  • Investors are analyzing the addressable market to ensure they have enough room to achieve organic growth potential while leaving enough whitespace for future owners of the asset.

Greater Confidence in Margin Outlook than Topline

  • Demand remains volatile but there are clear sources of margin relief as management teams focus on “controlling the controllable.” Freight, supply chain efficiency initiatives and favorable rate negotiations are accelerating recapture benefits.
  • Product promotion is being used to engage customers and drive traffic as inventory levels stabilize.
  • With increased gross margin, management teams have called out an ability and willingness to redeploy savings and invest in other areas of the business (i.e., marketing) while still being able to deliver on the bottom line.

Business Model Defensibility Is Key in Today’s Environment

  • Investors are scrutinizing the cyclicality of businesses even more as macroeconomic uncertainty continues.
  • Consumer businesses need to prove their offering is repeatable in nature or has a defensible business model in place to have success.
  • Investors are highly motivated to find businesses with a competitive moat; companies with regulatory requirements, companies that own their manufacturing process, or who have proprietary technology capabilities or IP are examples of businesses viewed favorably in this environment.
  • Understanding competition, customer demand dynamics and consumer value perceptions will become increasingly important to investors as categories become ever more crowded.

Direct-to-Consumer Business Models Continue to Prove Essential

  • Direct-to-consumer (DTC) channel continues to be important as traditional brick & mortar retailers continue to face uncertainty.
  • DTC enables businesses to offer the best combination of price, quality and service while controlling the narrative and building a smarter product engine (maintaining customer data, purchasing history and analytics to drive future business decisions).
  • DTC businesses can be more outwardly “authentic” than other businesses because they often stand for something more than just selling a product.   

M&A Platform Potential on Par with Organic Growth

  • Investors are focused on M&A platform potential and are actively reviewing the acquisition landscape and logical adjacencies prior to investing.
  • Sponsors are seeking management teams with a clear line of sight to transformational and tuck-in acquisitions that are actionable and near-term.
  • Multiple arbitrage and unlocking synergies can be an easy way for sponsors to drive returns for investors as a separate and distinct growth lever from organic growth.

Capitalizing on Shifting Investor Trends

  • Investors are focused on ensuring potential opportunities are compliant with fund ESG guidelines.
  • Health and wellness continues to be top of mind for consumers and investors as they build a thesis around the space; a health-conscious consumer is valuable and touches multiple sub-sectors across the consumer landscape in a meaningful way (food & beverage, fitness, VMS, personal care, consumer services, etc.).
  • Personal care and beauty have seen moderate growth off a period of particularly robust demand and continue to show resiliency (compelling newness in mass, still-healthy demand in prestige, price increases still flowing through).
  • Apparel demand has seen softening but this is increasingly becoming a brand-specific story.
  • Interest rates continue to pressure consumers, but several businesses with seasonal demand in the RV, Marine and Powersports industry are reporting positive trends as consumer spending picks up.
  • Companies stressed the importance of technology and digital strategy and the need for partners or investors with deep capabilities to partner with them earlier in their business lifecycle.         

Interested in learning more about these trends? Connect with Baird Global Consumer Investment Banking:

Brian McDonagh
Managing Director
Co-Head of Global Investment Banking

Maria Watts
Managing Director
Co-Head of Global Consumer

Ryan Brunker
Managing Director
Multi-Unit, Consumer Services
& Franchising

Robert Foster
Managing Director
European Consumer Coverage
+44 (0) 207-667-8309

Andrew Martin
Managing Director
Enthusiast Brands

Satoshi Matsumoto
Managing Director
Asian Consumer Coverage

Wendy Nicholson
Managing Director
Beauty & Wellness, Healthy
Living, Pet

Joe Pellegrini
Senior Advisor

Robert Rosenfeld
Managing Director
Household Products, Juvenile & Toy

Chris Sciortino
Managing Director
Multi-Unit, Restaurants, Fitness
& Franchising

Matt Tingler
Managing Director
Performance & Lifestyle Apparel
and Footwear

Sandy Walter
Managing Director

John Bastian
Active Lifestyles, Fitness & Mobility

Scott Ehlen
Home & Pet Products and Services

Matt Elberts
Outdoor, Sportsman & Sporting Goods

Lauren Leibrandt
Beauty & Wellness

Boris Partin
European Consumer Coverage
+44 (0) 207-667-8254

Jared Berk
Vice President

Daniel O' Brien
Vice President
Food & Beverage

Kotryna P. Smith
Vice President

John Steger
Vice President

Emily Thies
Vice President

Oliver Vauvelle
Vice President
+44 (0) 207-667-8404