United States

Q1 2018 Consumer Products Industry Spotlight



Buying behavior and its impact

Consumer preferences and buying behaviors continue to evolve. Few sectors are affected more than the restaurant space, which also faces work force constraints and intense competition. As tastes and preferences continue to change, the industry will likely create a deeper divide between successful and unsuccessful restaurant operators. Those who respond in a timely, effective way will have more opportunity to thrive while others may struggle to survive. That said, PE investors have yet to lose their appetites for restaurants, hotels and leisure assets. About $6.4 billion was invested in the sector in Q1, a healthy start to the year on the heels of the $30 billion invested last year.

Key findings

The consumer industry continues to evolve rapidly alongside changing consumer preferences. Despite new headwinds, investor interest in consumer products remains strong. Relatively few opportunities combined with high dry powder levels has created an imbalance in supply and demand. Due to rich valuations and ambitious sell-side expectations, broken deals are more prevalent today because there is less room for error. Private equity (PE) investors need to put their capital to work irrespective of broader market conditions. One source of deal flow is coming from fellow PE sponsors. Secondary buyouts have outpaced strategic acquisitions in each of the last three quarters, a sign that PE buyers remain committed to the space even as corporate interest pulls back somewhat.

Looking ahead

Recent changes to the federal tax code shouldn’t significantly affect PE, though the changes are worth understanding. From a structuring perspective, RSM is helping clients understand the changes from a post-close, cash flow perspective, which is the most relevant to PE firms. Both PE and strategic buyers see opportunities within the consumer area, despite market uncertainties. That said, many are hesitant, which has helped drag down deal activity over the past several quarters.


Datagraphic available for download.

Additional dealmaking industry insights

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Q1 2018 Business Products and Services Industry Spotlight

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Due to the disconnect between buyer and seller expectations, the market has recently experienced more broken deals than in prior quarters.

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