Consumer Sector Valuation Spike Sparks Discernment
By Brandon Zero On November 10, 2021
As consumer sector dealflow accelerates, Mergers & Acquisitions talks to Traub Capital Partners’ co-founder Brian Crosby about the scope of market opportunities.
Link to the article on the TheMiddleMarket.com here
“Dealflow is at a five-year high in terms of quantity; in terms of quality, that dealflow is probably lower quality than in the past,” Crosby tells us. “As a first-time fund, we’re trying to be incredibly selective around our investments, hypersensitive about executing on our strategy and being patient.”
That patience could pay a premium. Surging valuations have made subsectors across consumer goods and brands more expensive, making it more important than ever that buyers exercise discretion. Consumer goods ranked second in year over year increases in new targets from 2020 at a 35 percent increase in demand, according to a study from Axial.
“Owners are recognizing the demand dynamics and are trying to sell their companies off of peak earnings,” Crosby explains. “A lot of companies have had Covid bumps and are trying to sell off Covid spikes they’ve experienced off the past 12-18 months.”
The fund’s first acquisition exemplifies the often-extolled value of proprietary deal sourcing. Traub knew about Signature Brands’ potential through operating partners who worked with the management team at a previous consumer packaged goods company. Signature Brands distributes Betty Crocker products.
“This was a small division buried in the parent company. It had very nice brands and cash flows but was neglected by the parent, and with neglect comes a tapering of performance in the past few years,” Crosby says.
Traub’s operator-heavy team prides itself on seeing potential consumer growth alongside the typical financial lens applied to acquisitions. “We looked at it and saw declining performance, vacancies in the management team. People left because it was no resources. We saw in it a vision that others didn’t see in it. We knew we had the operational resources.”
The sponsor closed on the investment in October 2018, and has since inked another acquisition and announced a fundraising round bringing its total assets under management to $173 million.
Discernment might well be a useful tool as sector valuations continue to climb.