by CHARLOTTE, N.C. — The M&A market is down globally because of higher interest rates, a choppy consumer outlook and the abundance of bad news (and politics!) in the press.
Announcements of restructurings and bankruptcies are plentiful. The Conns/Badcock announcement last month sent a shockwave through the promotional sector.
Other familiar names, like Coast to Coast and Oka, also have recently fallen on hard times. These events can present red flags to potential investors, who may think there is too much trouble in our industry to pursue future investment.
However, there is plenty of good news not getting as much press, and there is an emerging optimism that 2025 will see a rebound in consumer spending for furniture — and that M&A will see a big rebound. Let’s dissect these reasons:
- Interest rates are coming down, per Fed Chairman Jerome Powell’s most recent comments. Inflation has been mostly curbed and a point or two drop in interest rates should spur new home construction and mortgage applications, both major bellwethers for future furniture purchases. Also, there is a school of thought that the population is becoming accustomed to higher rates and will go ahead with new home construction or upgrading into larger homes, biting the bullet and accepting new mortgages at 5%-6% rates.
- Election noise should be over after Nov. 5, with perhaps some residual barking about this or that irregularity. But the negative ads and huge TV spending — that drowns out furniture advertising — will abate, and the consumer will have time and energy to re-focus on the home.
- Baby boomers are aging and beginning to sell their long-time primary residences, right size to smaller homes, buy second homes at the beach or mountains, and pass along wealth to their kids (millennials). This demographic wave will certainly help spur furniture consumption as homes are bought and sold and the younger generations move into first-time home ownership or upgrading into larger homes.
- We are seeing strong interest from investors in China and throughout Asia who believe the U.S. has a stronger economy and greater prospects for growth. We see many wanting to invest into America and deploy their cash here in the U.S. Look for a wave of these deals in the coming year. We agree with Warren Buffett: “Don’t bet against the U.S.!”
We are also seeing strength in nonresidential furnishings markets. The hospitality sector is booming, following a difficult two years of Covid. The commercial market is busy trying to attract employees back to the office with collaborative and inviting spaces — this typically requires re-configuring the office and purchasing new and different furnishings. Sub-sectors of commercial furniture, such as health care, education, campus housing and assisted living companies are growing — and all need furniture.
The residential industry has a private equity cohort with some fantastic furniture holdings, all with initial investments dating to the mid-2010s. These PE firms are naturally looking to exit their investments. These firms will be eyeing a stronger economy to sell, and once the market turns, expect to see great companies selling successfully for big multiples. Whether these will be to familiar faces or new private equity firms, only time will tell.
Lastly, there are many excellent private companies performing well despite this choppy economic climate, and many are owned by 60-70-plus-year-old owners without concrete succession plans. This group is active in conversations with us about exiting. Good companies will always have a market.
Give us a call and let’s start a conversation.
Home News Now guest contributor Bo Stump is a partner in Charlotte, North Carolina-based merger and acquisition specialist Stump & Co.
