by Dayna Fields in Chicago with analytics by Izaz Ansari

• Drops in 52-week highs may help investors become willing sellers  
• Sale of Weber grill, Vince apparel could signal deal activity for 2H23 

The valuation decline of many consumer-sector stocks have financial sponsors and strategics circling take-private targets in the middle market, said sector advisors.

Some 31 consumer-focused companies debuted on US stock exchanges in 2021–a year of strong valuations and a record-breaking IPO market, according to ION Analytics. Out of those newbie stocks, 23 are trading below USD 10 a share, which makes them potentially prime turn-around targets for sponsors, sector advisors said.

One example is Illinois-based outdoor grills brand Weber, which floated an IPO in August 2021 for USD 14 per share. By December 2022, BDT Capital Partners took the company private via a buy-out offer for USD 8.05 per share. 

While PE firms are showing interest in take-private opportunities, however, a major obstacle to deal flow are investors reluctant to sell for far less than the valuation their investment was fetching just 12 months ago.

Pivotally, though, that resistance may change as strong 52-week highs from the past year drop and better reflect the market downturn, according to advisors. The market began slipping around April 2022, one advisor noted. 

Fifty-two week highs are “major metrics” that guide boards of directors and management teams, said several of the advisors. Eliminating evidence of stronger valuations from a bygone era may be the visual cue that helps them come to terms with today’s market value, they said. 

“When a stock falls off precipitously, typically it takes time for the seller to rationalize on price,” said David Shiffman, co-head of retail M&A for Solomon Partners. “It takes time to adjust what the new normal is and the fair value of the company.”

If investors become more receptive to lower valuations, then PE firms could make offers that are compelling enough to sell, said two advisors. 

Retail and apparel companies are expected to be hotbeds of take-private opportunities. Many such targets have high debt-to-equity ratio and no cash flow, they noted. 

One example is Authentic Brands’ acquisition last month of publicly listed fashion retailer Vince Holding [NYSE:VNCE] for USD 76.5m and a 25% interest in ABG Vince. At the time, Vince was trading at USD 6 a share with a roughly USD 94m market capitalization and a total debt burden of around USD 221m. 

Aggressive interest rate hikes, inflation, and lingering supply chain disruptions from the COVID-19 pandemic have all contributed to steep performance declines in retail and apparel this year, said advisors.

Buyers also have their eyes on internet-based direct-to-consumer (D2C) companies that are trading substantially downward from the frenzied early days of the global pandemic, when consumers were forced to quickly accelerate their adoption of online shopping. 

One example is online pet pharmacy Petmed Express [NASDAQ:PETS], whose stock has seen a steady decline since hitting USD 40 per share in July 2020. This month, the stock slumped to USD 14.94 per share in recent trading. 

Buyers looking for deals and investment bankers looking for mandates are also eyeing companies that went public via a SPAC merger in 2021 amid frothy valuations. Today, many are trading below USD 5 per share. 

Online pet supplies e-tailer Bark [NYSE:BARK], for example, which went public in June 2021 via a SPAC merger with Northern Star Acquisition Corp. It fetched a valuation above USD 1.6bn and was trading over USD 12 at its debut. Today, it trades just over USD 1 per share and has a market cap of USD 188m. 

The substantial regulatory costs required for maintaining a company’s publicly listed status with the SEC—which could cost as much as USD 10m annually—could force these companies to explore its strategic options, said one advisor. 

Such may be the case for Sweden-based oat milk brand Oatly, [NASDAQ:OTLY] which listed at USD 17 a share in 2021 but is today trading around USD 2. Although the brand continues to lose money each year, it may still be attractive to international dairy strategics like Nestle [SWX:NESN] and Danone [EPA:BN] because of its strong branding power and global scale, said advisors. 

Regarding the return of IPOs, one advisor said he expects technology and healthcare companies to first test the markets before consumer and retail companies follow suit. While he doubts there will be any IPOs in the consumer space for the remainder of this year, the advisor is optimistic that they will return in 2024. 

Below is a list of consumer companies that have gone public since 2017 and now trading below USD 10 a share.

© Dealogic 2023    *Prices reflect end of trading on 17 May, 2023