For starters, they represent a foundation for next-generation networks. Click below to download and read our Q1 2024 Market Updates for sector-specific insights and synthesis across categories.
G2 Capital Advisors is pleased to present its Consumer & Retail, Industrials & Manufacturing, Technology & Business Services, and Transportation & Logistics market updates. Click to download the full reports, including commentary and analysis on Q4 M&A and market trends within our core focus sectors.
Consumer & Retail Market Trends:
While retail foot traffic rose for practically all categories, it wasn’t enough to counter the effects of inflation combined with deep holiday discounting. Inflation was up 6.5% from year-ago levels – while lower than the peaks seen earlier in the year, it was enough to dampen consumer confidence heading into holiday shopping. Moreover, food prices continue to climb, driving consumers to devote more of their dollars to necessities rather than discretionary goods.
Industrials & Manufacturing Market Trends:
After two years of pandemic-fueled disruption, a host of new challenges arose in 2022 for packaging businesses as increased inflation and interest rates, the war in Ukraine, and commodity prices hitting historic highs, impacted the pace of M&A activity. Despite the challenging macroeconomic environment, the appetite among private equity groups and strategic buyers for well-established packaging companies remained high.
Technology & Business Services Market Trends:
The US economic outlook remains unclear with a general negative sentiment. Increasing interest rates, supply chain issues, and geopolitical uncertainty are putting pressure on multiples in many segments of the market. Value creation and a focus on fundamentals will be key themes in 2023 with businesses and investors intent on how they build value organically and inorganically in line with core growth theses. For many privacy equity firms, the near-term focus will likely be on add-on acquisitions that enhance existing portfolio companies.
Transportation & Logistics Market Update:
As transportation and logistics providers navigate an uncertain economic and freight environment, operators in California are faced with an additional challenge as Assembly Bill 5 California (“AB5”) takes effect following numerous legal battles. AB5, which became state law in 2019, requires companies to reclassify many independent contractors as employees, prohibiting trucking companies from working with owner-operators and 1099 drivers in California. In an environment where a driver shortage persists, eliminating a strategy that provides trucking companies scalability and flexibility could have lasting implications across the freight market.
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G2 Capital Advisors is pleased to present its Transportation & Logistics industry update for Q3 2022, providing commentary and analysis on M&A and market trends within the sector.
After continued momentum across global transportation services in 1H 2022, a 60%+ year-over-year decrease in global container freight rates (as measured by the Freightos Baltic Index) in Q3 has reinforced economic weakness. More specifically, the cost to ship products across the Trans-Pacific trade lane has cooled from record highs of over $20,000 per container in Q3 2021 to less than $3,000 per container by September 2022. These trends are signaling a drop in consumer demand amid rising inflation and a rebalancing of consumer spending to essential goods and services, while retailers manage bloated inventory levels and temper expectations for holiday spend.
As demand growth has stalled from a muted peak season, ocean vessels are not fully utilized causing spot rates to drop below contract rates. These carriers have increased blank sailings as a strategy to match supply with demand in hopes of establishing a pricing floor. It remains uncertain how quickly this imbalance will correct and whether carriers will be forced to maintain lower capacity in response to the declines experienced across most major shipping routes.
Pricing pressure remains the primary industry challenge which has forced freight forwarders to continue adopting and tailoring processes, technologies and service capabilities to further differentiate their solutions. Those providers with an automated, self-service solution that can provide real-time visibility portals, rate optimization engines, and effective analytics and reporting for customer milestone communication will differentiate their services, improve customer retention and drive future growth and profitability through an uncertain market.
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.
G2 Capital Advisors is pleased to present its Consumer & Retail industry update for Q3 2022, providing commentary and analysis on M&A and market trends within the Consumer & Retail sectors.
The world’s largest fast-moving consumer goods companies saw robust growth following the global pandemic, and exhibited resilience in the wake of supply chain constraints and the sharp rise in inflation. In fact, the sector not only survived – it thrived, with average sales exceeding pre-pandemic levels. That said, as sentiment has coalesced around a near-certain downturn, performance is not surprisingly bifurcating between staples and discretionary goods, with prospects for the latter turning sharply.
High inflation, supply chain issues, and increasing recession worries are all factors pressuring the consumer discretionary sector, which already faces the greatest sensitivity to economic cycles. In Q3 2022, discretionary goods companies saw increases in two risk criteria – lowered corporate guidance and greater short interest. Companies in the sector that lowered guidance doubled vs Q2 and increased ten-fold vs Q1, with short interest surpassing all other industries.
Consumer staples, on the other hand, held up better than the broader market, consistent with prior downturns. While the S&P tumbled 25% through Q3, consumer staples stocks fell less than half that, playing their traditionally defensive role. Nonetheless, consumers are now choosing what and where to buy differently, as the pandemic shifted a growing portion of food sales online. Moreover, while many brands enjoy pricing power over private label products, they are nonetheless vulnerable to premium house brands from the likes of Whole Foods and Trader Joe’s.
After years of grappling with the rise of online shopping, brick-and-mortar retailers are posting some of their best results, with retail vacancies at a 15-year low and plans for expansion underway as consumers continue to venture out post-pandemic. In fact, sale growth among physical stores is outpacing that of e-commerce, as the pandemic forced companies to expand and better integrate their omni-channel offerings. While still vulnerable, the retail industry nonetheless appears better-positioned than in prior downturns.
G2 Capital Advisors is pleased to present its Industrials & Manufacturing industry update for Q3 2022, providing commentary and analysis on M&A and market trends within the Industrials & Manufacturing sectors.
A historic, $1.2T of funding has been approved to invest in aging infrastructure nationwide through the Infrastructure Investment and Jobs Act (“IIJA”), coupled with additional investment of $52B through the CHIPS Act and $700B through the Inflation Reduction Act. Construction services firms have been buoyed by the news of the injections, promising years of bumper backlogs and a reliable end customer in the U.S. government. Unfortunately, new investment can’t conjure up a much-needed base of skilled laborers, as the war for talent rages on. Only 80% of the 1MM construction workers who lost their jobs at the beginning of the pandemic have returned, in the face of an estimated 1MM additional workers required in the near term to keep up with high demand. Firms have been forced into bidding wars and are providing more clearly defined career trajectories to attract new workers. As the U.S. hovers over a recessionary state, pressure on wage growth should ease more broadly, but will likely remain an acute issue for the construction services industry as demand is supported by government policy. With spending under the infrastructure law expected to peak in 2027-28, the labor strain is set to become a longer term, structural issue.
The $700B Inflation Reduction Act includes a rejuvenated solar power incentive, increasing the existing tax rebate from 26% to 30% for a period of ten years through 2032. Originally scheduled to phase out between 2020 and 2023, the reboot will be partially financed by a 15% alternative minimum tax on some large U.S. corporations and a 1% excise tax on certain corporate share repurchases. The Biden administration aims to further increase investment and development of renewable energy alternatives, providing a significant boon to developers and investors. This backdrop of robust demand has allowed firms to pass inflationary pressures on to end customers, offsetting the impact on their businesses.
While demand for the construction services and renewable energies sectors will remain robust, supported by extraordinary government funding, industry players will need to combat persistent labor shortages likely to endure through a forecasted recession.