On March 1, 2017, Nixon Peabody hosted a private equity roundtable event at its New York City office focusing on consumer products and services in middle market transactions. The panelists were as follows: David Benyaminy, Partner, AUA Private Equity Partners, LLC, Christopher Bradley, Managing Director, Mistral Equity Partners, Michael Fanelli, Partner, Transaction Advisory Services, RSM US LLP, and Jonah Glick, Senior Vice President, Tree Line Capital Partners. The discussion was moderated by Marc Kenny, Partner at Nixon Peabody LLP, Richard F. Langan, Jr., Partner at Nixon Peabody LLP, and Jeremy Wolk, Partner at Nixon Peabody LLP.
The discussion began by one moderator noting that brick and mortar operations are being hit hard by a move to e-commerce. In response, the panelists stated that they do not avoid brick and mortar companies, but instead they look for target companiesthat have brick and mortar stores but who also manage their own e-commerce and websites. This change has been noted in the market as more consumer product giants have been plowing more funds into their e-commerce offerings, beyond even more durable goods such as apparel.
In addition, many major consumer-driven companies are now successfully using augmented reality (“AR”) technology and AR apps to enrich their customers’ experiences and interactions with their brand to ultimately boost sales.The panelists noted that this use of technology is here to stay and will continue to change the retail space in the coming years (such as trying on reading glasses virtually over the internet instead of going into a brick and mortar store to try on and purchase glasses). If a product does not allow a customer to experience it online, then the panelists said that it is likely that such product will be less successful and, in some cases, they do try to avoid investing in such products.
The discussion then turned to the millennial generation with the panel noting that the behavior of this generation continues to be on the radar of private equity investors in the consumer sector. The panel further noted that the millennial generation has shifted their focus towards experiences, so that they are more interested in paying for experiences than goods. In addition, another trend is that the millennial generation has a preference for convenience, health and the customization of products. These trends have caught the attention of private equity investors and they are focusing on investing in companies that offer these types of products and services because the millennial generation is now gaining more purchasing power and private equity investors want to capitalize on this power.
The discussion ended with a note that there is worry in the industry about the potential changes in laws and regulations that the Trump administration has promised to implement, including the potential for an import tax. No one knows what the import tax will be or how or when such an import tax would be implemented, so there is some uncertainty surrounding this issue, and this uncertainty is factored into whether the panelists will invest in a company. For example, one panelist recently consideredbidding on a company that had a large number of imports from China but the target’s largest competitors did not also similarly import its products from China, so they passed on this bid as being too risky given the potential future import tax.