The consumer and retail sector has had a turbulent year. Some sub-sectors, including non-essential and physical retail, were heavily impacted by lockdowns, while other verticals, including essential consumer goods, convenience and online-powered retailers, have thrived.

A more stable backdrop over the past six months, however, is helping most consumer verticals to thrive across the board. US consumer spending increased by 11.3 percent over the first quarter of Q1 2021, according to the Bureau of Economic Analysis, and the Dow Jones US Consumer Goods Index is up by just under 40 percent over the past 12 months, following steep declines in Q1 2020.

With clearer visibility on future company earnings and indicators pointing to stronger consumer spending, there has been greater appetite for M&A transactions in the consumer space. Volume in H1 2021 has come in at 248 deals, generating aggregate deal value of US$52 billion. This represents a 29 percent rise in volume from H1 2020, with value climbing 158 percent over the same period. H1 2021 consumer deal numbers also represent an increase on pre-pandemic levels, with deal value for the first half of the year 51 percent above total value in H1 2019.

PE interest

Reviving private equity interest in the consumer space has been especially prominent, with buyout firms noting the more stable consumer backdrop and opportunities to invest at attractive valuations.

The largest US consumer deal of the year saw BDT Capital Partners acquire water filtration company Culligan International from Advent International in a secondary buyout worth US$6 billion.

Water treatment and filtration providers have been popular private equity targets. Culligan generates close to two-thirds of its revenues from monthly service contracts, which reflects how private equity firms are sifting through the consumer space to find assets with stable recurring earnings and predictable cash flows.

Buyout firms have also moved to invest in assets expected to benefit from anticipated long-term shifts in consumer behavior post- COVID-19. Apollo, for example, paid US$4.4 billion to take arts and crafts retailer Michaels private. Michaels recorded double-digit sales growth through the pandemic period as consumers turned to decorating and crafts while stuck at home. Apollo expects this trend to continue. The deal is also expected to support Michaels, which has a physical store network of 1,200 sites, as it builds out its digital capability.

Consumer dealmaking has also been strong in the food, health and nutrition sub-sectors, which are also characterized by stable earnings. Food and drink multinational Nestlé acquired the vitamin and supplements brands of The Bountiful Company in a US$5.8 billion deal from private equity firm KKR. The deal builds out Nestlé’s health and nutrition portfolio, which is a key growth area for the group.

Other food deals include Hormel Foods buying Kraft Heinz’s nuts business and Total Produce buying the remaining 55 percent stake it did not already own in agrifood business Dole.

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2021 White & Case LLP}