2018 Annual Consumer Products Industry Spotlight
INSIGHT ARTICLE |
Participants in RSM’s US Middle Market Business Index indicate that, over the past year, they have started the process of passing price increases downstream to customers. However, modeling out how to shift the costs of a tight labor market and increased tariff rates onto the consumer remains a concern even as companies in the consumer products (CP) space become increasingly aware of how trade policies can impact their operations. In this environment, middle market companies that achieve strong branding through social media, and that leverage efficiencies in their supply chains and production cycles through technology to support the digital experience, can position themselves for higher valuations from prospective private equity (PE) buyers. Meanwhile, far more rigorous levels of due diligence have become the norm across the industry over the past five years. This increase in actionable information on acquisition targets is resulting in fewer broken deals despite today’s historically high multiples.
The preeminent theme among investors entering the new year is the further risk that US trade policy could pose for price inputs. However, middle market CP companies that make good on pledges to implement digital investment strategies will continue to justify their elevated valuations over the near term. Technology investments among middle market companies, buoyed by the Tax Cuts and Jobs Act of 2017 that provided additional bonus depreciation to support increased levels of capital expenditures, include areas such as robotics, which once represented far more labor-intensive processes that now can be automated. CP businesses can realize some margin benefits in these areas as they look to mitigate the macro-level uncertainties of a potentially protracted trade war. Going forward, clients need to identify and proactively mitigate the impacts of tariffs on their businesses by prioritizing potential avenues for cost efficiencies, including process automation and enterprise resource planning.
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