Annual Consumer M&A Report – Middle Market M&A Activity and 2025 Outlook

Consumer M&A Market Rebound Realized in 2024, Poised to Accelerate in 2025

Capstone Partners’ annual Consumer Industry M&A Report and 2025 Outlook examines public market valuations, macroeconomic trends, and deal activity driving sectors within the Consumer space. The majority of transactions completed by our Consumer Investment Banking Group are for privately-owned businesses accessing long-term investors for the first time. Our team knows strategic buyers drive the highest valuations and we are laser focused on getting to know each of their sweet spots in mergers and acquisitions (M&A). Using proprietary data, we will work closely with you to prep your company and put you in the ideal position for the best possible outcome.

Is the Consumer M&A Market Primed for a Big 2025?

Several improvements in the Consumer industry M&A markets in 2024 lead us to believe the market is primed for a significant increase in deal activity and valuations in 2025. In 2024, consumer M&A volume was up 8.6% year-over-year (YOY) and saw a slight increase in overall M&A valuations to 9.6x EV/LTM EBITDA. Getting behind the numbers, we see the majority of consumer M&A transactions were driven by corporations making strategic acquisitions. In 2024, approximately 70% of all Consumer M&A was conducted by corporations compared to ~30% from private equity funds. This is a positive sign as it shows corporate America, at least in the Consumer world, views M&A as a good return on investment (ROI) strategy. Interestingly, public consumer stocks have performed inconsistently. Only a few sectors including Tactical, Home Goods, E-Commerce, and Sports Technology have beaten the S&P 500 return of 24% in 2024. These sectors are not typical harbingers of a great market in Consumer. Key indicators are certainly doing well, with moderating inflation and healthy GDP (Gross Domestic Product) growth throughout 2024. Of note, the Institute for Supply Management (ISM) Manufacturing Index rose to 50.9 in January 2025, beating market estimates and recording the first U.S. Manufacturing sector expansion in 26 months, according to the ISM.¹ New orders reached the highest level since 2022 and increased by 3% compared to December, signaling accelerating customer demand. Sentiment among middle market business owners in the Consumer space appears to reflect these positive market signals. Nearly two-thirds of middle market CEOs have a positive outlook for the Consumer industry in 2025, compared to 60% in the prior year, according Capstone’s 2024 Middle Market Business Owners Survey.

We are keeping a close eye on the start of a rotation from Consumer Staples to the Consumer Discretionary space in the public markets. The historically slower growing, more defensive S&P 500 Consumer Staples index outperformed its counterpart, the S&P 500 Consumer Discretionary index, 81.8% of the days in the three years since the M&A market entered its downturn in 2022. More recently, discretionary companies outperformed staples in the past 70 days, ending February 6. The historical precedent suggests discretionary players realize outsized value appreciation in strong markets, characterized by resurgent discretionary spending and rising consumer confidence. When looking at the relationship between the two Consumer industry constituents and consumer confidence over the past 26 years, the average discretionary index value growth has been roughly three points higher than the average staples index value growth when consumer confidence increases. A stronger underlying growth profile and rebounding consumer confidence may provide some long-awaited tailwinds in the discretionary side of the industry and add the proverbial fuel to the fire for Consumer M&A in 2025. A key question remains: how will inflation impact this swing?

We believe the spark that will ignite a rally in 2025 is the combination of 1) private equity deploying more than $1 trillion of dry powder that has been sitting on the sidelines and 2) public consumer companies actively pursuing prized brands in their sectors ahead of a booming economy. It is difficult to identify the factors that will initiate this trend, but we expect it will stem from a combination of the new administration’s actions yielding positive outcomes, lower interest rates, tighter credit spreads, CEO’s prioritization of growth and push for scale, and an acceleration of digital transformation through artificial intelligence (AI). As past recoveries have proved, the Consumer sectors of the economy benefit disproportionately from M&A markets re-opening after long periods of stagnation. At more than two years, this cycle is certainly a long period.

Consumer M&A Valuations Regain Momentum in 2024

M&A valuations in the Consumer industry expanded in 2024 with a median purchase multiple of 9.6x EV/EBITDA—nearly a full turn higher than the prior year (8.8x). Pricing was supported by clarity around the Federal Reserve’s (Fed) monetary policy and the path of interest rates, as well as easing recessionary concerns. Strategic and financial acquirers awarded premium valuations to businesses with strong customer retention, healthy balance sheets, robust innovation pipelines, and volume-led organic revenue growth. Scaled privately-owned businesses offering immediate accretive impacts to financial performance continued to garner healthy valuations from buyers. Notably, upper middle market targets (enterprise value between $250 and $500 million) recorded the highest median EBITDA multiple (10.0x) across the industry, followed by large-scale (greater than $500 million in enterprise value) and the core middle market ($100-$250 million in enterprise value) logging 9.7x EV/EBITDA and 9.6x EV/EBITDA, respectively.

As transparency over financing costs increased, many buyers pursued deals with significant capital commitments. This marked a notable turn from 2023, where uncertainty over the interest rate path and economic outlook pushed acquirers to pursue small-scale, easily digestible transactions. In 2024, upper middle market and large-scale transactions accounted for 25.1% of total disclosed deals, the highest composition in the past nine years.

The valuation environment is expected to improve in 2025 as buyers become more willing to pay premium valuations for growth amid lower base interest rates and tighter credit spreads. Best-in-class private equity assets will likely come to market as fund managers seek to realize exits in top performing portfolio companies to return capital to limited partners (LPs) and accelerate future fund formation. Concurrently, strategics are expected to re-enter the M&A market as buyers after divesting non-core and underperforming assets in 2024, creating a competitive buyer universe in 2025.

M&A Activity Trends by Sector

The full report, available for download below, includes M&A commentary and analysis on 14 key sectors within the Consumer industry:

• Apparel, Footwear & Accessories
• Automotive Aftermarket
• Beauty
• Beverage
• Convenience Store & Fuel Distribution
• E-Commerce
• Food
• Home Goods
• Outdoor Recreation & Enthusiasts
• Pest Control
• Pet
• Sports Technology
• Tactical Products
• Vitamins & Supplements