Clearwater International Head of Consumer Gareth Iley shares his thoughts.
Given the well-publicised headwinds in certain consumer areas (high street retail, casual dining), what are the top-level factors keeping entry multiples robust in the sector as a whole?
First of all, it is important to remember that while headlines in the UK may have been somewhat dominated by the difficulties experienced by bricks and mortar retailers and casual dining chains, the situation is not the same across continental Europe. Most European economies are actually relatively stable and growth rates have recovered. The consumer sector continues to represent an important part of economic activity and therefore deal-doing has not been as significantly affected by changes in buying habits or expensive high street rents as it perhaps has in the UK. And while it has been sub-sectors away from retail that has driven the strong multiples in recent quarters, it is also clear that there remain good opportunities in the retail space, especially among those retailers that are protected against the conditions by strong e-commerce capabilities.
Overall, the latest data shows that there was a strong level of activity in the consumer space. And, with the exception of one or two outliers, entry multiples in the sector mostly fell in the 5x-15x range, underlining the fact that there are opportunities at all price points.
Deals in the travel and leisure space have been prominent in recent quarters. What are the big factors underpinning the attractiveness of this area and therefore the prices being paid?
PE-backed activity in the travel and leisure sectors has certainly been one of the standout features of the market in recent months. One of the main factors behind this is the growing focus on health and well-being among consumers. It is driving a number of areas in the wider sector, but travel is clearly one of the key pieces, with travel spending remaining robust as consumers continue to prioritise holidays and regular breaks.
Within this, there a wide variety of opportunities that are proving attractive –from all-inclusive tour operators to providers of much more bespoke or complex ‘luxury experiences’. Companies that have changed hands in recent quarters –often at robust multiples –range from the holiday providers (like Neilson) catering to more affluent consumers to those that serve lower income consumers. Across the board, the most desirable assets offer an effective online booking to access their holiday products. Deals in the latest quarter include the acquisitions of Neilson Active, On The Go Tours and Great Rail Journeys.
Outside of the travel space, the health and well-being angle (both physical and mental) has been important driver of activity in the gyms and fitness sub-sector across Europe and offers plenty of opportunities for buy-and-build and consolidations plays. It has also played a part in the consumer services area, with plenty of deal flow being seen in areas such as childcare and specialist training and funeral services. What’s more this is not limited to the consumers themselves, but their pets -spending in pet-care areas has also led to attractive opportunities for M&A activity.