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Retail and consumer IPOs, M&A activity slowing amid inflation: KPMG

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On April 12, 2022, people shop in a Monterey Park grocery store. 

Frederic J. Getty Images| AFP | Getty Images

Surging interest rates, supply chain problems and war in Ukraine all conspired to stifle IPOs in both the retail and consumer sectors.

According to a global consultancy KPMG, the total volume of retail and consumer transactions in the quarter fell by 31.9% compared with the preceding period. The report was released Wednesday. Deal volume shrank 39.8%.

This is a marked reversal of recent trends when deals involving U.S-based retail and consumer companies almost matched levels pre-pandemic.

KPMG stated that the boom in last year’s retail e-commerce was in large part due to a strong focus on wellness and health trends. The year 2021 is expected to be much more successful. Levi Strauss & Co. bought Beyond Yoga, Wolverine World Wide acquired Sweaty Betty, and Crocs purchased Hey Dude. These retailers include Allbirds, Warby Parker, On Running, Lulu’s, Brilliant Earth, ThredUp, Rent the Runway A.K.A Brands — just to name a few — all started trading on public exchanges.

According to Kevin Martin (head of KPMG’s U.S. Consumer and Retail division), the consumer and retail sectors were poised for continued rapid growth in initial public offerings and deals at the beginning of this year. Executives and investors have had to take a step back due to volatility in stock markets and uncertainties about consumer spending. a span of underperformance from so-called direct-to-consumer darlings’ stockson the larger market, such as those of Warby Parker & Allbirds.

Martin isn’t sure if deal activity will increase rapidly in 2018, but he expects that more consumers brands, retailers, and private equity companies will be aiming for 2023. Along with the sector of consumer alcohol, Martin sees pet categories, such as pet-food producers, being a major focus.

Some retailers could feel pressured to liquidate a portion of their business. However, some highly anticipated deals may be made sooner than expected. Home goods retailer, for example. Bed Bath & BeyondAccording to reports, Cerberus Capital Management is currently reviewing offers for the BuyBuy Baby company. There are also increasing calls for GapSplitting its Athleta division, which is growing faster than the rest of its brands.

“Companies are still pressing ahead as is — pedal to the metal in some cases — with the idea that by the time 2023 rolls around some of the concerns that we’re observing now globally will be moved on from them,” Martin said. Martin stated that there will be a lot of demand.

Reports indicate that retail and consumer companies are pursuing an IPO. online sneaker exchange StockX, Rihanna’s Savage X Fenty lingerie line, yogurt maker Chobani, e-commerce marketplace Zazzle furniture brand Serena & Lily. Consumer private equity giant L Catterton also is reportedlyYou might consider an IPO.

CNBC reached out to these companies for clarification but they didn’t respond immediately.

Supply chains and inflation are important topics

Martin feels that the private-label foods brands could provide the best opportunities to make deals in light of rising prices.

He said that it was unclear what percentage of the consumers’ savings or disposable income will be affected by rising prices in the future. He stated that large food-and beverage companies will either look to acquire or sell private labels in order to give shoppers an affordable option when they shop at supermarkets.

The supply chain issue is another opportunity to grow deals, said he. Businesses are facing delays in receiving finished goods and materials from overseas. This can also be exacerbated by sky-high transport costs.

Do you create something or buy it to provide a local supply chain? That’s going to be a driver of M&A activity and something that will accelerate over the rest of 2022,” he said.

This is how clothing retailers can be found. American Eagle Outfitters last year acquired two companies — one focused on distribution centers, the other on trucking — to help it build out a vertically integrated supply chain business that it’s now opening up to other retailers.

Martin said that a third trend might be due to an increased focus on ESG or environmental social management. Win Brands GroupThe recent purchase of Love Your Melon by, an outdoor lifestyle brand which gives half of its net income towards charities fighting pediatric cancer.

KPMG reported that the private equity market suffered the greatest decline in the first three months of 2019, falling 51% compared to the fourth quarter 2021. Martin noted that one of the key factors in deterring potential is Federal Reserve’s aggressive interest rate approach.

According to him, “The increased cost of capital has an impact on corporate strategics or corporations in significant ways.” It does impact their decision-making process around what type of return they will get on an asset. Private equity is also affected, although sometimes it’s even more.

Martin acknowledged that the “dry powder” is still available to consumer-focused equity firms. They are simply taking the time to search for the best assets in an uncertain environment. In addition to L Catterton, some firms that play in this space include Sycamore Partners, Bain Capital, Ares Management and Leonard Green & Partners.

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