Home Goods Market Update – October 2024

M&A Picks Up in the Home Goods Market, Expected to Carry Momentum Into 2025

Capstone’s latest Home Goods Market Update reports that sector optimism has bolstered a healthy merger and acquisition (M&A) environment as participants successfully manage profitability challenges and pursue growth strategies.

Elevated inflation, rising interest rates, and slowing economic growth have challenged discretionary spending in the Home Goods market. Sector spending has continued to taper from pandemic highs. With consumer wallets spread thin, big-ticket item demand has deteriorated. Further, many consumers made large purchases during COVID, when stay-at-home mandates and stimulus checks fueled robust demand. Sector participants have attempted to adjust to slowing demand while maintaining volume growth through promotional activity at the expense of average sale price, driving down margins and hurting overall profitability. As a result, expansion efforts have been a focal point for business owners looking to gain market share and source growth while organic opportunities stagnate amid subdued demand. With a difficult macroeconomic backdrop, bringing high-quality, innovative products to market at compelling price points has proven paramount to top-line growth. Sector participants have sought to protect margins via vertical integrations that offer operational efficiencies throughout the supply chain. The Furniture & Home Furnishings segment has been the focal point for consolidation and vertical integration plays. Strategics have remained offensive despite cyclical headwinds, employing aggressive growth strategies in the fragmented market. Capstone believes sales in the Home Goods sector are poised to rebound in the coming months and, with it, a rampant level of M&A activity amid a broader market recovery. To-date, transaction activity suggests the sector has begun its rebound, with a material year-over-year (YOY) increase in dealmaking through July.

M&A volume in the Home Goods sector has continued its growth trajectory, climbing 23.8% YOY to 99 deals announced or completed through year-to-date (YTD). The sector has seen increased activity from both strategic and financial buyers, with deal activity rising 13.8% and 66.7% YOY, respectively. The trading of small private furnishing companies has persisted as a historic trend in the sector. Notably, the Furniture & Home Furnishing segment has comprised 62 transactions, or 62.6%, of total deal volume to-date. Private buyers have continued to leverage M&A to gain access to new markets or grow market share in existing geographies. Net income and profitability have been pressured in the post-pandemic environment, driving buyer appetite for targets with immediately accretive financials. During the prior year period, mandated lockdowns and government stimulus checks armed consumers with ample cash and a demand to enhance home living standards. Following the pandemic-driven surge in demand, retailers have grappled with slowing sales volumes and margin compression via inflationary input costs and product promotions. Deal volume YTD suggests an abundant amount of assets have been marketed with many independent business owners looking for an exit after experiencing turbulence in recent years.

Also included in this report:  

• An overview of sector spending trends, investor appetite, and public sector participants’ sentiment.
• A breakdown of what buyers are actively pursuing M&A and transaction valuation trends.
• Four detailed transaction highlights, focused on a legacy segment of the market and a burgeoning area of the Home Goods sector.