Multi-Unit Buzz: Despite Soaring Inflation, Buyers & Sellers Remain Active

“It’s a once-in-a-century experience with a different economy than it was a century ago. There’s just no road map.”
–Diane Swonk, Chief Economist at Grant Thornton

“We’re in a really difficult position, because we don’t have successful precedents for having an economy this red hot in terms of low unemployment and high inflation and not having a recession.”
–Larry Summers, Former Treasury Secretary

“Restaurants are trying to bring back control –reduce fees, own the data, and reestablish a direct brand experience with the customer by bringing back delivery in-house.”
–Jean Chick, Principal of US Restaurant & Food Service at Deloitte

“The pandemic has highlighted how important the early years are, and interest in the early education market is growing as families, communities, and governments are paying more attention.”
–Matt Glickman, CEO of Promise Venture Studio

“As already short-staffed restaurants reopen, they are grappling with how to manage both in-person diners and deliveries, while meeting growing expectations on speed and service. Technology that helps kitchens manage and time orders from multiple channels will be key to keeping pace and ensuring diners stay happy and loyal.”
–Jerome Powell, Chair at the Federal Reserve

Consumer Multi-Unit: Key Indicators & Takeaways

Overall Consumer Spending

• Consumer spending continues grow to record levels, moving in line with record-selling growth in the inflation rate.
• “We’re not really seeing many signs of slowdown [in consumer spending patterns] despite the worries that are happening in the market” – Anna Zhou, Economist at Bank of America.

Consumer Confidence

• Consumer confidence has declined over the past 12 months.
• Consumers do not expect economic outperformance in the near future, but concerns surrounding inflation and recessionary public market behaviors have not totally dampened confidence levels: things can be much worse.

Non-Durable Goods Spending

• Non-Durable goods spending slightly lags overall consumer spending, and has experienced high growth coming out of the pandemic era.
• In a practice known as “shrinkflation”, some non-durable goods companies are decreasing product size to maintain profitability amid rising costs of packaging, ingredients, transportation, and labor.

Food Service & Accommodations Spending

• The restaurant and hospitality space continues to see significant growth in spending, with 77% of adults now comfortable dining out, compared to 18% in April 2020
• The Bureau of Labor Statistics estimates that employment in the food and beverage industry will grow 17% from 2020 to 2030 with ana average of 1.03 million openings annually.

Middle Market M&A Overview

Observations

• Middle Market M&A Correction this Quarter
  • Global Middle Market M&A has followed suit of the public markets with corrections in deal volume and value from their record high levels 12 months ago, but down 14% near 2019 levels.
  • Last year’s records were driven by pandemic recovery, stimulus aid, and low interest rates on debt funding: these conditions are no longer defining the market considering raging inflation and market volatility.
• Slower Start to 2022 for Private Equity
  • U.S. PE firms closed 2,167 deals (869 middle market) for a combined value of $296 billion.
  • U.S. PE firms raised over $300 billion in new capital in 2021.
  • Despite market headwinds, transaction multiples remained high this quarter, at the record enterprise value of 7.3x LTM EBITDA.
• Leverage Levels to See Changes
  • Some firms may need to decrease leverage in light of rising interest rates, having less excess capital to complete deals at higher values.
  • Total debt to EBITDA multiples for lower middle market PE transactions averaged 4x to 4.5x this quarter, remaining steady as compared to Q4 2021.
• Dry Powder Remains High
  • Many large buyout firms are returning to the fundraising market after the record number of deals in 2021 depleted large amounts of dry powder.
  • With more than $400 billion of dry powder on hand middle-market PE firms are still more than equipped to do deals, especially in a market that has become cheaper.