Market conditions over the past few years have promoted value-added development partners to the forefront of M&A. For a variety of reasons, these firms are drawing the eyes of consumer brands, large consumer packaged goods, and dealmakers. Across three key industries, firms are seeing the overwhelming benefit provided by development partners.

In a report provided by William Blair, value-added development partners (VADP), or firms that help brands and retailers bring products to market and provide value beyond contract manufacturing and packaging services, are highlighted across the beauty and personal care, consumer health, and home and laundry care markets.

The markets that these firms serve are predicted to continue growing, with beauty and personal care, consumer health and home and laundry care all projected to grow at compound annual growth rates of 5.7 percent, 5.7 percent, and 4.0 percent through 2026, respectively.

These firms which were more traditionally used as overflow contract filling and packaging services have grown to trade at premium valuations as they now provide advanced offerings and expertise to allow brands to focus on core business operations like sales and marketing. The development partners that sit on the high end of the valuation spectrum are offering their partners innovation and R&D abilities, customer and SKU diversity, differentiated product offerings, automated operations and organic growth mobility.

Dealmakers have not hesitated to invest in value-add development partners. Knox Lane has acquired Elevation Labs, a developer for beauty brands, Gryphon has acquired Revision Skincare and Goodier Cosmetics, and Clearlake has purchased Team Technologies. It is evident that these firms are grabbing the eyes of dealmakers through the demand they fill and the impact they add.

The value among these firms lies across multiple key areas. Favorable market conditions created by resilient consumer demand and the non-discretionary nature of the products have provided a buffer against the market. Additionally, dealmakers see value-add firms as a way to bet on an industry rather than a single brand or product offering.

VADP firms also benefit from market trends in which large consumer brands are transitioning to an asset-lite strategy which has created a need for development partners that can facilitate manufacturing services and operations and provide flexibility for the larger brands. Finally, these partners can help fill the demand of consumers for the growing health and wellness markets.

Are you seeing interest in VADP companies? Do you think this trend will last? Let me know your thoughts at [email protected].

-Cole Lipsky