HILTON HEAD, S.C. — The home furnishings industry is riding a wave of merger and acquisition activity that is unlikely to crest any time soon. That was the assessment of panelists Darlene Leonard, partner at , Stuart Mullens Stump of , and Mike Watson, partner at , speaking at Furniture Today’s Bedding Conference.
That has not been the case for the past several years, said the panelists, noting that a series of industry and economic disruptions served to make industry executives more risk averse with a corresponding decrease in the number of deals.
“The key word is ‘disruption’,” said Mullens-Stump. “You had eight once-in-a-lifetime events in a three-year period with tariffs, anti-dumping, the pandemic, the pull-forward of years of business, followed by the fall off in demand.”
That has changed over the past 12 to 18 months as a growing number of companies have looked to strengthen their market position through acquisition. However, the panelists noted that the types of deals that are taking place and the way they’re structured are somewhat different today than in past periods of heightened activity.
“Right now, we’re on the front side of activity that is very strategic in nature,” said Watson. “Companies are making bets that are five to 10 years out.”
Watson also noted that many of the deals the industry is currently seeing are what he called “vertical” in nature, meaning they are aimed at giving companies greater control over more aspects of their business as opposed to broadening the businesses across which they compete. He pointed to Tempur Sealy’s effort to buy Mattress Firm and Ashley’s acquisition of DTC-specialist Resident as examples.
“The lines between retailers and manufacturers are blurring,” Watson said.
Leonard noted that, with higher interest rates and correspondingly banks requiring higher cash levels to make deals happen, sellers are increasingly “taking sellers notes or earn out to get the multiples they’re looking for.”
While many of the most recent deals have not involved private equity funding, panelists noted that the industry is likely to see that change soon. “There is a crop of PE firms looking to exit,” said Mullens-Stump. “Those that got in over the past several years have to get out. That means you’re likely to see a new crop coming in.”
Watson concurred, noting that while many PE firms are currently on the sidelines due to the industry’s recent challenges, the recent flurry of deals is sure to draw attention and, in turn, PE dollars. “Private equity is too big not to be part of this conversation,” Watson said.
For those planning to sell, the panelists noted that this is the time to prepare: to establish the company’s valuation, to develop a management team so the company is not ownership dependent and to ensure that systems and operations are up to date.
“If you can normalize a growth trajectory, even if it means going back to 2019 for comparability, that creates a more attractive basis for acquisition,” said Leonard. “Good companies will sell in good or in bad years.”