Persistent supply chain disruption is a problem that portfolio companies might be able to acquire their way out of as private equity and business owners grapple with ways to increase operational efficiency. In consumer goods and retail, that might mean scale, says Stifel’s head of consumer & retail and diversified industrials investment banking Michael Kollender. “There are examples of retailers acquiring other retailers to better leverage shared infrastructure, including distribution centers, buying, centralized store operations, etc.,” he tells Mergers & Acquisitions.
This acquisition strategy is born out of a need to manage labor costs, Kollender previously said, and opens up a range of potential opportunities.
“Some brand aggregators, including brand management companies and traditional wholesale businesses, have executed acquisitions that drive top line revenues on a consolidated basis, promoting higher overall margins, in part through better leverage of corporate overhead,” he explains. “As margins are under pressure from increasing labor costs and supply chain costs, growth is a key driver to maintain or increase margins. Growth typically comes organically and through acquisitions.”
Consumer sector acquisitions, like other sectors, have been in full swing. Authentic Brands agreed to acquire Reebok from Adidas for $2.5 billion earlier this month, adding to its stable of labels including Brooks Brothers and Barneys New York.
A recent survey of industrials and consumer sector players finds that wage inflation is already here. Half of the corporate executives, business owners, and private equity investors polled by Stifel have already “meaningfully” raised wages at portfolio companies, while 45 percent have done so “marginally.” The survey offers at least some indications that portfolio companies are searching for other means of mitigating the impact of wage inflation.
– Brandon Zero
