Record-breaking post-Holiday sales masked a marked slowdown in overall retail spending. Despite Black Friday and Cyber Monday sales surpassing $20 billion for the first time in history, U.S. retail spending experienced its most significant decline of the year, suggesting households are making strategic financial decisions as they plan for the road ahead. The economy remains at an unprecedented crossroads, with many questions looming:
Will inflation continue to slow, and how much further could interest rates rise? The Fed continues to raise rates at a slightly slower pace and has signaled its intention to continue doing so at least through the spring.
Will a slightly slowing economy morph into a full-blown recession, and will the labor market remain strong? While sales and margins show signs of softening, the labor market continues to defy expectations, making it hard for the Federal Reserve to further ease the policy. Layoffs in the technology, media and real estate industries make headlines. Still, they represent a minuscule portion of the labor force, with overall jobless claims falling by 20,000.
How much longer will pandemic-era savings and easing supply chains buttress consumer spending, and will they continue to spend more on necessities? While personal savings soared to nearly $6.5 trillion in 2020, they’ve since dropped to below $500 billion, lower than the $1.4 trillion pre-pandemic. Despite supply chain imbalances driving discount sales as retailers looked to shed excess inventory, consumers are focusing their budgets on food and other staples and spending less on holiday categories such as electronics, clothing, and sporting goods.
Ultimately, is a recession inevitable, and how bad might it get? This remains anyone’s prediction, but for business owners, management teams, and industry leaders, any level of uncertainty should be met head-on – waiting to seek clarity can be a losing move.
Connect with G2 to discuss your 2023 strategic objectives. At G2 Capital Advisors, deep sector and operational expertise underscore our dedication to achieving success at all costs. We support clients through both healthy market cycles and times of distress, with a refusal to fail. We provide highly tailored advice to company-specific circumstances in an ever-changing world. Reach out today to start the conversation.
G2 Capital Advisors is pleased to present its Technology & Business Services (“T&BS”) industry update for Q3 2022, providing commentary and analysis on M&A and market trends within the Technology & Business Services sectors and sub-sectors.
The US economic outlook remains uncertain with a general negative sentiment. While supply chain issues are easing, the hiring and job markets remain strong, and consumer spending while slowing is not plummeting, The Conference Board forecasts that economic weakness will intensify and spread more broadly over the coming months driven by inflation and a hawkish Federal Reserve stepping in to aggressively increase the federal funds rate. The Federal Reserve typically walks rates up slowly because they work with a lag, but one that can be powerful. The current rate of increases has them moving more quickly to offset the lag which is a delicate balance. The Federal Reserve’s rate increases represent the fastest tightening since the 1980s when they ultimately raised rates to nearly 20%, sending unemployment to greater than 10%.
The impact on the T&BS M&A market is largely just emerging. We are seeing a slowdown in response increasing costs of leverage and the general uncertainty in the market as well as a marked increase in scrutiny of fit and during diligence. Additionally, many private equity firms were able to return capital to investors from strong exits over the last couple of years, taking the pressure off near term exits. However, quality deals are getting done and 2022 volume is expected to be up from pre-pandemic levels.
Several sectors in particular have seen increased deal volume generated by significant tailwinds. Cybersecurity software and services deals have received interest and attention driven by the ongoing diplomatic tensions between the US and Russia created by Russia’s invasion of Ukraine earlier in the year, as well as the continued fraying of relations with China in response to a host of factors. There has been a similar boom in IT consulting services sector, as companies continue to need highly-specialized, knowledgeable consultants to help them adapt to the ever-changing technology landscape and offset a tight skilled labor force.
- Mastering the Retailer Supply Chain: Players like Amazon and Walmart have set a new standard for consumer’s expectation for same-day or next-day delivery. To respond, we’ve seen retailers enhancing their partnerships with, and even acquiring third-party logistics providers to get goods to consumers faster. Recent examples include American Eagle Outfitters’ acquisition of Quiet Logistics, Costco’s acquisition of Innovel Solutions, and Panasonic’s acquisition of Blue Yonder, a widely used warehouse and labor management platform. Our consumer & retail team has played a hand in acquisitions for retailers with recent engagements including:
- Digitization beyond just distribution: Brands that were traditionally offline continue to seek additions to bring them online as quickly as possible, and many of these partners are opportunistically acquiring brands themselves. The incredible growth in the eCommerce Aggregator space, driven both by traditional M&A activity and high-value VC investment, continues to dominate the headlines. Additionally, consumer companies continue to invest in areas like CRM and content marketing to extend the product experience and further influence consumers’ decision-making.
- Consolidation focused on higher-order territories: Where M&A activity historically skewed toward product category or aisle consolidation has shifted into higher-order need-state territories and solutions. For example, owning the hand cream aisle has taken a back seat to owning a total care story, and owning healthy eating has been replaced by owning total lifestyle. Further consolidation is expected as many product categories and store aisles remain highly fragmented.
How to win in retail today? Be nimble and think broader
For consumer & retail companies, the ground is constantly shifting. Spiking and fickle consumer demand, supply chain snarls, inflation, and fast-evolving consumer preferences are reverberating throughout the industry. These shifts are affecting every aspect of a retailer’s business—from sales and marketing strategy to inventory and supply chain management.
What Are Consumers Looking For?
Consumers expect more from retail companies today. They demand an easy, efficient, and enjoyable experience above all else. They increasingly expect retailers to meet them exactly where they are, and to meet their expectations instantly, all while displaying a lower capacity for frustration.
“Retail is as real-time as it’s ever been. Pricing fluctuations, trip-driving behavior shifts, and demand for immediacy—especially given the normalization of same-day delivery and an endless aisle online—have forced everyone in retail to leave room in their long-term plans for adaptations and adjustments.”– Brian Cohen, Managing Director & Head of Consumer & Retail, G2 Capital Advisors
Rather than temporary, pandemic-related changes that will revert back to normal, we believe these shifts have permanently altered the retail environment.
Against this backdrop, it is critical for consumer & retail companies to embrace a more nimble and flexible strategy. Today, long-term plans are only as good as how often you revisit them. Management teams must continuously reassess their strategy and make adjustments based on the prevailing market conditions.
How do these trends affect you?
Our consumer & retail team welcomes the opportunity to share our perspectives on today’s consumer and retail environment. We can help you revisit your strategic roadmap, including whether now is the right time to sell your business, continue to grow through acquisitions, or raise external capital. Contact us to start a conversation today or learn more about our expertise in retail.
Worldwide Produce (“Worldwide”) is a leading distributor of high-quality fresh fruits, vegetables, dairy products, and specialty foods to local restaurants, national chains, hotels, country clubs, entertainment venues, and catering companies in the Southern California region. Operating from state-of-the-art climate-controlled facilities in Los Angeles, California and Las Vegas, Nevada, Worldwide stocks thousands of items needed to efficiently operate a foodservice business. Worldwide also carries hard-to-find specialty items, paper goods, and cleaning supplies.
Long-term industry leader, Worldwide, joined forces with financial partner, Sole Source Capital (“Sole Source”) in 2019. Since being founded in 1989, Worldwide established its reputation as a premium produce provider to the Foodservice industry and experienced strong organic growth. Following its partnership with Sole Source, Worldwide’s management team were looking to further enhance their growth through a targeted M&A strategy to deepen their service and product offerings, acquire new customers, and expand geographically into new markets.
G2 Capital Advisors, LLC (“G2”) served as the exclusive financial advisor to Worldwide leading a bespoke buy-side effort focused on identifying and engaging with companies that have a strong market presence and operations within the produce distribution markets.
G2’s mandate with Worldwide led to the acquisition of Vision Produce Company (“Vision”) which added an enhanced geographic presence, additional sales channels, deep grower relationships, and a strong talent pool. Together, Worldwide and Vision will leverage a larger geographic footprint, impressive food safety records, and expertise to deliver the highest quality of goods to their customer base.
Todd Ferguson, CEO of Worldwide Produce, commented “I’m thrilled that Vision Produce has joined the Worldwide family. The team at Vision brings tremendous experience sourcing and importing quality produce, and expertly serving their blue-chip customer base. With a location in Phoenix as well as Los Angeles, Vision’s footprint allows us to continue to expand our reach and serve customers in this key growth market.”
“We are excited for the Worldwide team on its closing of Vision Produce as this acquisition will further enhance their capabilities. Both companies are highly reputable players with long histories of success, and we are glad to have played a role in their new partnership,” said Andrew Keleher, Vice President at G2 Capital Advisors.
About Worldwide Produce:
Worldwide Produce is a leading distributor of fresh fruits, vegetables, dairy products, and specialty foods to independent and chain restaurants across the Southern California region. The company operates out of two distribution facilities located in Los Angeles, CA and Las Vegas, NV and stocks roughly 6,000 SKUs. Worldwide Produce was founded by current management in 1989 and has rapidly grown its revenue base due to its high-quality produce, superior service levels, strong sales staff, and high-quality
About Vision Produce Company:
Established in 1980 with facilities in both Los Angeles and Phoenix, Vision Produce is a produce importer and distributor selling primarily to retail, wholesale and foodservice distribution customers in the Western United States. The Company offers a variety of fresh produce types including mangoes, limes, melons, chili peppers and more, which are sourced primarily from Mexico and South America. Additionally, Vision Produce owns Southwest Truck Brokers, a Phoenix-based freight and logistics broker primarily servicing the Western United States.
About Sole Source Capital
Founded in 2016 by David Fredston, Sole Source Capital is a private equity firm that thematically invests in fragmented, high-growth industrial subsectors. Sole Source seeks founder-owned businesses or corporate carve-outs that will benefit from the team’s operating and M&A capabilities. The Firm has a strong operating heritage that enables it to execute a buy and build strategy with significant downside protection. The Firm is headquartered in Dallas, Texas with offices in Santa Monica, California. For more information, please visit www.solesourcecapital.com or contact [email protected]
About G2 Capital Advisors
G2 Capital Advisors provides M&A, capital markets and restructuring advisory services to the middle market. We offer integrated, multi-product and sector-focused services by pairing highly experienced C-level executives with specialist investment bankers. We aspire to be the trusted advisor of choice to our clients including corporations and institutional investors.
CONTACTS ON THIS DEAL:
Peter Reed, Director, Buy-side: T: 617.918.7972 E: [email protected]
Andrew Keleher, Vice President: T: 860.748.6480 E: [email protected]
Matt Ball, Senior Associate: T: 617.918.7933: [email protected]
Aaron Levy, Senior Analyst: T: 857.250.2767 E: [email protected]