Shifting tides: Changes in private equity post-pandemic
Insights from the UBS Global Consumer and Retail Conference
At the UBS Global Consumer and Retail Conference in New York City, panelists discussed strategic shifts in consumer behavior and the corresponding impact on private equity investing.
Views from: Michael Lasser, Managing Director, Equity Research – US Hardline / Broadline and Food, UBS; Jennifer Davis, Partner, Bain Capital Private Equity; Michael White, Principal, Advent International; and Adam Weinberger, Managing Director, Sycamore Partners.
Private equity: Navigating a new era
The private equity landscape has witnessed significant changes in the consumer sector over the past few years.
There has been “an increasing focus on services from some sponsors who have traditionally been more forward leaning in consumer products,” said Michael White, driven by broader tailwinds behind consumer spending on services and experiences, and also by market uncertainity.
Adam Weinberger emphasized the difficulty in visualizing business growth as another contributing factor for the shift, while calling into scope the impact of the pandemic, supply chain issues, and inflationary pressures.
Today, private equity investment in the consumer sector stands at roughly half of its pandemic peak.
From goods to services: Rethinking investments
In addition to the decline in investment volume, there has been a notable shift from branded consumer goods to consumer services. This change, driven by inflationary pressure and supply chain disruptions, has led to increased volatility in the operating environment.
“There has been a lack of clarity regarding the health of the consumer and their spending power,“ said White, highlighting the challenges posed by this volatile environment.
Businesses are now facing significant challenges in projecting future growth. Weinberger echoed this sentiment, emphasizing the difficulty of forecasting business performance amidst the rising inflation rates.
However, the panelists echoed the sentiment that they continue to see value in the consumer goods space, and believe this shift may be temporary.
The average annual sponsor’s equity investment in the consumer sector was about USD 22 billion, however in the past two years if fell by almost half to USD 10 billion. This decline has changed the investment landscape, leading many sponsors to deprioritize or exit the space altogether.
Investing for tomorrow: Emerging trends
Despite the decline in volume, the general consensus was that investment opportunities still exist across major sub-verticles including heath and wellness, digital acceleration and environmental sustainability.
However, investment strategies now include due diligence processes that place an increased emphasis on having multiple exit strategies. Davis noted that “Seeing that there are multiple paths to exit is a higher priority than three or four years ago. Because we have all learned that you cannot rely on IPO markets always being open as an exit strategy.”
Overall, while the consumer sector has faced unprecedented challenges in recent years, the panelists remained cautiously optimistic about the future of private equity in this space.
Despite the challenges ahead, the panelists agreed that with strategic planning, operational excellence, and a keen eye on emerging trends, private equity can continue to thrive in the post-COVID consumer sector.
