What buyers and investors look for: consumer markets
12 November 2024
Is economic recovery fuelling investment opportunities?
Our latest consumer outlook survey showed consumer confidence is returning as households’ real disposable incomes grow, driven by a reduction in inflation, real wage increases and the implementation of tax cuts from April. This uptick in sentiment is mirrored in GfK’s latest consumer confidence index which shows a 10-point increase over the last year from October 2023 to September 2024, demonstrating that consumer confidence is steadily recovering.
Certain subsectors have experienced more resilient demand, with individuals increasingly prioritising self-care and wellness, and of course, their pets. This is driving investor demand in categories such as beauty, known for its higher gross margins, growth and innovation. M&A activity levels are expected to rise, with both private equity investors and trade players indicating a strong appetite for expanding portfolios in more resilient and adaptable categories within the broader consumer industry.
Consumer markets are rapidly changing, from the way consumer’s approach spending through to supply side challenges. So when it comes to selling or securing investment for your consumer business, it is important to address the valuation drivers head on to show buyers and investors that you are in a strong position. No matter your businesses’ subsector, the challenges will be echoed throughout the industry.
What are the key considerations you should focus on prior to selling your business?
Data – a powerful tool
Throughout the sale process, there is a scrupulous focus on financials and underlying data. In today’s market, buyers and investors expect businesses to be “well-packaged”, with all critical information readily available, enabling buyers or investors to build a well-founded acquisition plan. Assembling a comprehensive data set cut by product, customer, channel and geography, along with detailed analysis of key e-commerce and marketing KPIs – such as customer acquisition cost and lifetime value – is essential. For instance, understanding the composition of your margins, including factors like purchasing power and brand equity preservation through effective stock management and full-price strategies, is crucial. This preparation helps buyers or investors grasp the core metrics and dynamics driving your growth, enhancing your appeal.
Standing out from the crowd
Delivering a clear and consistent message to the market is crucial for building momentum and excitement around the sale process. Central to this is effective storytelling – conveying what your brand stands for, its unique identity and its ability to balance a portfolio of staple and hero products with innovative offerings. This demonstrates your brand’s agility in responding to ever-changing consumer preferences. For instance, in the beauty sector, the lines between beauty and wellness are increasingly blurred, with consumers prioritising and demanding products backed by science, ingredient transparency and the ability to achieve the intended result are winning. Ultimately, it’s essential to show that your brand resonates deeply with your target audience, fostering a loyal customer base and active community, while also attracting new consumers without compromising profitability. Understanding the importance of articulating what makes your brand special will make your business more appealing to potential buyers or investors.
Articulating the potential of untapped opportunities
When seeking a partner for your next chapter, developing a realistic business plan that highlights the main growth pillars - balancing proven strategies with tangible growth opportunities - is essential. This plan should include a combination of maintaining current momentum, such as expanding market share in existing channels and regions, and demonstrating new growth opportunities. For instance, if your business has primarily operated within the UK, experimenting with a pop-up model in a new territory can be a low-risk yet valuable strategy to test market viability.
Additionally, establishing operational infrastructure overseas, such as setting up distribution centres or recruiting key personnel to lead strategic initiatives, can instil confidence in the feasibility of your projected growth.
Clearly articulating these points in a compelling growth story, showcasing not just current success but also future potential, creates a strong acquisition thesis.
Navigating customer touchpoints and increasing brand exposure
A 2017 study by Harvard Business Review found that omni-channel customers spend 4% more in-store and 10% more online than single-channel customers, and this trend has only increased in recent years. Consequently, many brands now operate across multiple channels. Online channels offer higher margins and direct engagement, fostering greater customer loyalty and community building. Offline formats, such as own stores or wholesalers, enhance brand awareness through association with well-known names and provide forward order visibility, which helps in budgeting and managing seasonality.
The key to mastering this is to ensure you do not have an over-reliance on one channel and that the customer journey and experience is consistent and seamless across all channels. Adopting a strong omni-channel strategy can highlight your business’s adaptability, customer-centric approach and higher revenue potential, making it more attractive to potential buyers or investors.
In the evolving consumer markets, addressing common valuation drivers is crucial and will allow for a smoother process and increase the likelihood of a deal that achieves your exit aspirations.
How our deal services team can support your consumer business
Considered planning and strategic positioning are essential to maximise the value, mitigate the risk of disruption to your business or value erosion, and ensure the long-term success of the transaction.
We have advised on over 60 transactions in the consumer industry over the last three years. As a full-service firm, we guide clients through the entire sale, fundraising or acquisition lifecycle – helping them prepare the necessary information and maximise value throughout the process.
For more information on how we can help you enhance and protect value, please see our guide.
If you would like to discuss your options, please get in touch with Gemma Legg.
