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Trends in Consumer M&A: Then and Now (Virtual Roundtable)


“Loyalty is up for grabs,” comments Carl Cordova, Managing Director at Auctus Capital Partners. Today’s post-pandemic consumer is increasingly driven by convenience, diluting the once all-important notion of brand loyalty. On this week’s latest installment of Axial’s Virtual Roundtable series, a group of consumer-focused M&A professionals gathered to discuss the profound transformation of the consumer industry over the last year. The conversation focused largely on retail and consumer trends and covered everything from the evolution of marketing to how government stimulus impacted the industry. The discussion also touched on trends in the restaurant and fitness sectors, and rounded out with predictions about where retail is heading in the near future. 

Thank you to the below Axial members who participated in the discussion: 




Show Notes 

Introductions 00:00 – 7:48


How have consumers evolved since COVID? 8:19

  • Carl Cordova, Auctus: “Loyalty is up for grabs” is a unanimous feeling among business owners.
  • 2x the number of households are shopping online for their groceries (now probably somewhere between 30-50%)
  • 75% of consumers have tried a new way of shopping, new stores, and/or new brands since COVID began.
  • Consumer patterns are like a giant slab of wet cement and there are probably 24 months until the cement hardens and a set of patterns is solidified.
  • Richard Kestenbaum, Triangle Capital: The cliche that the pandemic accelerated existing trends has only become a cliche because it’s true. 
  • The trends during COVID aren’t as much an evolution as they are a continuation of existing trends
  • There has been the obvious growth of online, as well as a growth in resale, interest in sustainability, and a strong increased interest in anxiety & wellness products.
  • What’s happening now probably would have happened in 2024/2025 had COVID not happened
  • People have purchased things online that they swore they would never purchase online, which changes their outlook for future purchases as well.
  • Omar Simmons, Exaltare: In fitness, at-home workout products (i.e. Peloton) accelerated extremely quickly. 
  • At Planet Fitness (Omar owns one of the largest Planet Fitness franchises with more than 100 units throughout the U.S. and Canada), there was a slow leak and membership dropped 12-13% throughout COVID, but they’ve had extremely strong week-over-week growth in 2021, with their highest day of new memberships in the past month.
  • People are yearning for human connection again, so while the at-home products fill a gap, you don’t get the same energy as when you’re working out with or around other people.
  • Quick-Service Restaurants (QSR) is another interesting space; anything with a drive-thru has had an uptick in demand through COVID, and some of the businesses were more profitable than ever due to COVID (in which case it’s difficult to come up with normalized EBITDA).
  • Exaltare couldn’t get any QSR deals done because the business owners wanted much higher multiples than what would have been paid pre-COVID.
  • The two above examples make an investor think about what bounceback demand will be like, and what trends will stick.
  • John Willert, Heartwood: it’s been really difficult to evaluate certain businesses due to all of the variables like PPP money, changes in lifestyle patterns (and how those will continue to change in the future), etc. that really mess with numbers. 
  • Lori Lombardo, Entrepreneur Partners: Consumers have evolved in that they’ve latched onto certain things — it is very common in today’s environment that a brand will become part of a consumer’s identity.
  • John Willert, Heartwood: One of the firm’s portfolio companies is an automotive aftermarket parts business, and they saw a huge uptick in traffic and sales during COVID, but it also emphasized the need for marketing and two-way communication with consumers. Being able to deepen relationships with consumers was key. 
  • Richard Kestenbaum, Triangle: Going back to Omars point about the fitness space… people are people and they’re not going to magically turn into someone who doesn’t use their treadmill as a clothes hanger. People had to be home, which is why they used at-home equipment, not necessarily because they prefer to. 
  • The reasons that people went to gym to begin with never went away, rather they were just made impossible because of lockdown measures.
  • Many restaurants have closed, and as that industry comes back, there is going to be a lot of opportunity. 
  • This is actually one of the best retail environments in decades: 88% of consumers are comfortable making trips to retail destinations to some degree, 53% of consumers nationally intend to visit shopping/dining destinations this weekend. 
  • There is money in people’s pockets both from the stimulus and because there haven’t been places to spend it in a long time. This alongside the desire to “make a jailbreak” creates the perfect storm for retail.
  • The CEO of Coach told Richard that their digital sales have not diminished even in places where stores have been open for a while now (such as Texas), and all of the in-person sales are just incremental
  • Lafayette 148 is another brand that Richard spoke with who said that women are buying fashion products that are indicative of good economic times (bright colors, short hemlines, etc.).
  • All of the experts Richard has spoken with recently agree that they’re optimistic about the environment; all say that the environment is one of the best, if not the best, that they’ve ever seen


What business categories proved to be/will be the most bulletproof? 26:00

  • Omar Simmons, Exaltare: In a lot of cases, businesses thrived during the pandemic because of luck more than skill.
  • Anything with a membership model has been more resilient than similar businesses that do not have a recurring revenue model. Not everyone is going to abort because of a short(ish) term problem, and it’s easier to plan your cost structure in these businesses.
  • Examples of this are gym memberships, Massage Envy, and then also services that may not have a set membership, but they’re cyclical, recurring services (i.e. hair salons, wax salons, eyelash extensions).
  • It’s a lot easier as a potential buyer to underwrite a business that you have a good idea of what the baseline numbers are. It helps to mitigate some of the short-term volatility.
  • Carl Cordova, Auctus: To play devil’s advocate to the above point, a lot of consumers have made changes to their lifestyles based on what they learned they need or don’t need during lockdown.
  • Carl spoke to an investor who said every partner in their firm voted unanimously to invest in auto repair shops before COVID because they believed it to be recession proof. During COVID, the business got killed because very few people were driving. Because of situations like that (and also with a lot more time on everyone’s hands), a lot of people learned how to fix their own cars.
  • People may have picked up new skills or found alternative ways to do the things they used to pay for.
  • Omar Simmons, Exaltare: Because there is a limit to the amount of time and energy people have, Omar feels it’s a safe bet that people will go back to their pre-COVID habits.
  • John Willert, Heartwood: When you look at the future, that’s where diversification comes into play: a couple of examples…
  • A portfolio company that manufacturers packaging and it makes it both for consumer foods (deli meats sold at grocery stores) but also makes food prep products (used primarily by QSR) was carried by the grocery store business when the restaurant side of the business was suffering.
  • Another portfolio company sells to big box stores but also had a direct-to-consumer channel; while big box business was crushed during the pandemic, DTC kept everything running smoothly. 
  • So Heartwood is going to continue to look for businesses that can reach the consumer in many ways and make a profit in different environments the way these businesses did during COVID.
  • Richard Kestenbaum, Triangle: The future of success isn’t necessarily tied to a specific type of product, rather there is success and failure in almost every type of product (which is not new to the pandemic).
  • It comes down to values: People no longer look for their personal values in the same traditional places that they used to (religion, extended family, etc.). Now they look more towards non-traditional sources for their values, one of which is consumer products. Because of this, they’re looking for brands that are values-driven and focus on things like, ethical supply chain, sustainability, local production, and authenticity. When brands can successfully carry out those things, they’re seeing high success rates. 
  • Price is not a primary consideration when someone can identify and associate with a product/brand/retailer. Additionally, these brands have low marketing costs, because when someone feels so closely connected to a brand, word of mouth/social media is extremely strong.
  • Generally, companies that can adapt to the above model (or were created that way) can succeed, regardless of what product category they’re in.
  • Lori Lombardo, Entrepreneur Partners: This is why social media marketing has exploded so much for retailers. Because brands are now much more closely connected to consumers’ identities, and because consumers are spending so much time on their phones and on social media, this is where brands and retailers are putting a lot of focus.


What happens post-stimulus checks? 36:00

  • John Willert, Heartwood – Every investor is leaning into this question in the current deal environment because there is so much competition right now and there’s not a lot of wiggle room in price. You really need to dig in to how
  • Richard Kestenbaum, Triangle: Data that Richard has seen in retail shows that there was an immediate burst in revenue when the stimulus came out. However, what’s important isn’t the burst, but it’s if the month-over-month numbers continue in the same pattern. As long as this is the case, which it has been in some scenarios, stimulus considerations are not an obstacle in deals that Triangle is working on.
  • Omar Simmons, Exaltare: The people who have been winning deals have not found stimulus money to be an issue. 
  • The three things that Omar considers are: aggregate demand dollars, relevant demand, and time horizon.
  • When it comes to aggregate demand, stimulus checks increased the dollars that were available to be spent on things, and there was a limited number of places where you were able to spend your money. 
  • Exaltare spent a lot of time looking at pre-COVID environment, because those were fundamental trends.
  • When your time horizon is 5 years, it’s less about a few months of poor performance, and more about getting the trends right overall.
  • Where it gets tricky is if you’re pricing off of peak EBITDA.
  • John Willert, Heartwood: In some of Heartwood’s portfolio companies, they  saw something similar to what Richard mentioned earlier. There was a huge burst in sales when stimulus checks came out, which showed that people wanted the product, but that they didn’t previously have a budget for the product.
  • Lori Lombardo, Entrepreneur Partners: The firm has really had trouble valuing some of the businesses that had an extreme COVID bump. The gap between true value and what other bidders are willing to pay is tough, though this seems to be becoming less of an issue as things level out.
  • Richard Kestenbaum, Triangle: He’s seen business owners who have converted their businesses during COVID to producing or selling masks and hand sanitizer that now want to sell the business based on those revenue numbers, and Triangle can’t do anything with those businesses. 
  • If a business is really sustainable, it’s because the month after the stimulus bursts, they still have a really attractive year-to-year comparisons by month. That is the true test of what a business will look like in the future. 
  • Omar Simmons, Exaltare: Omar had the expectation that this would be the biggest recession that he’d live through, but because of government action with stimulus money, etc. it was actually the quickest. So does this mean that there’s another big downturn to come in the near future?
  • People are currently more worried about inflation and overspending versus recession.
  • This makes Exaltare think more about taking a cautious approach similar to what John discussed earlier: thinking about reaching the consumer through different avenues and in different scenarios.


The evolution of sales and advertising channels 45:06

  • Lori Lombardo, Entrepreneur Partners: There is a proliferation happening among digital channels, especially social media (Tik Tok is a big one that’s emerging) where you’re getting as many touchpoints with a consumer as you can.
  • When reviewing deals and looking at a business’ numbers, you can see ad spend on various social channels increasing over time, and the list of different social channels is also becoming much longer.
  • Peter Lehrman, Axial: When you think about how much time you used to spend online versus what you do today (there is so much more time spent virtually than in person), you have to believe that the number of available hours for digital marketing have skyrocketed.
  • John Willert, Heartwood: 5G connectivity has also made the mobile device available for a much richer experience.
  • Richard Kestenbaum, Triangle: in 2020 when the pandemic hit, all of the big advertisers cancelled their advertising, which left an enormous amount of availability, especially online. So what smaller DTC companies found is that their return on ad spend went way up, because the cost of each ad went way down. This has a significant impact on their bottom line, but that profitability is not repeatable. 
  • Because of this, a big thing to look at is customer acquisition cost and show the monthly expected spend for 2021 and 2022 compared to 2020; if it isn’t higher going forward, it’s not forecasted correctly. 
  • Carl Cordova, Auctus: CPG-branded companies are trying to establish a better and more direct relationship with consumers; this started before COVID, but as with a lot of things, was accelerated during the pandemic.
  • Lori Lombardo, Entrepreneur Partners: Understanding the underlying dynamics of the customer base and changes over time is the most important thing.


The emergence of ghost kitchens in the restaurant industry 51:25

  • Restaurants tend to be very low-margin businesses; is the emergence and acceleration of things like ghost kitchens and/or the possibility of delivery-only restaurants going to change the business model?
  • Carl Cordova, Auctus: The way this works is that there are are two parties who have a symbiotic relationship: a brand that does not want to spend an enormous amount of time/money on delivery in new zip codes, so they strike a relationship with restaurants that have kitchens that would be equipped to fill orders for their menu.
  • The host kitchen/ghost kitchen/virtual kitchen owns the check and in return, they pay a royalty payment to the brand that is being made & delivered.
  • The kitchen that is producing the food has a better utilization rate in their kitchen, which is good for them (and was especially good during COVID).
  • There is a lot of setup that goes into this, but if you do it the right way, the setup costs are usually no more than $5000.


What other retail models will emerge? 56:07

  • There are so many open storefronts right now; what will become of those?
  • Omar Simmons, Exaltare: Exalatre was spending a lot of time on experiential retail pre-COVID. A lot of malls are anchoring around things like an Apple store or a gym versus the more traditional retailer because Amazon is taking such a toll on those other more traditional stores. 
  • There’s a shift away from retail stores being only places where you buy a product versus where you go for a full experience.
  • Carl Cordova, Auctus: Amazon is now going brick-and-mortar beyond Whole Foods and they seem to be getting very aggressive, very quickly. 
  • There used to be certain things that were guarded from Amazon dominance because they were more conducive to the brick-and-mortar shopping experience, but as Amazon rolls out their in-person strategy, those businesses aren’t safe anymore. 
  • This connects back to how there is often an uproar when Walmart goes into a community and everyone is upset because it’s going to destroy small business in that area. Amazon is now stepping into those shoes.
  • Richard Kestenbaum, Triangle: A store used to be a place where there was stuff and if you wanted stuff, you’d go to a store. That’s not the case anymore.
  • Where retail is heading: bringing people into a store for reasons other than shopping (click here to access Richard’s Forbes article on this topic). 
  • You can think about it as it relates to places like Orlando and Las Vegas. You don’t go to either place with the goal of shopping, but you end up shopping. And you wouldn’t go to Vegas and buy a hat with mouse ears or to Orlando to buy a Fendi purse, but those are things that sell in their respective locations.
  • The skills that exist to bring consumers into a store for reasons outside of shopping usually don’t exist within the retailer, which poses a challenge.
  • Will leadership meet the challenge and hire people with new skill sets to bring the business to the next level, while they may have to leave behind some of the folks who have done a great job in the past but can’t adapt?
  • Nike is doing a great job when it comes to the above. They have you use their app to shop in their store. Realistically you don’t need to go into the store to shop if you’re going to do it on the app, but it’s novel and entertaining and lets you get the perks of being in a store (physical merchandise, retail associates helping you) while you have the ease of digital shopping.
  • Nike has always had various sales strategies, and they continue to evolve and have support across demographics. 
  • Grafting entertainment skills into retailers is going to be really challenging for a lot of brands.
  • Omar Simmons, Exaltare: U.S. retail per capita is so much higher here than anywhere else in the world, so is the obvious solution that you need less retail so you can focus more on the entertainment aspect? It’s very interesting because we’re in a different position than anyone else. 
  • Richard Kestenbaum, Triangle: The U.S. is 10x the runner up, which is the U.K.
  • The accounting professional is not serving the shift in retail well, because the numbers and metrics they use to determine the success of stores relate to products sold in store. There is value in stores that may contribute to digital sales, but there is no way to track that now. 
  • Peter Lehrman, Axial: Bonobos is a brand that has ended up with a significant amount of stores, but they don’t sell anything in their stores. You can go into the store and get help from a Bonobos “guide” to try things on, but you walk out of the store without any products. The stores don’t have inventory, and as a result they don’t have inventory management, etc. This was a very interesting spin on retail innovation when they launched. 
  • Ralph Lauren launched a coffee shop in their flagship store, which may not seem as novel, but they’re generating a lot of traffic through that coffee shop.
  • John Willert, Heartwood: The firm is invested in a sod business that sells sod to landscapers, but they also have retail stores where you can buy sod. If you go into the retail stores, you become part of their “family” and they can help you get lawnmowers or compost, or teach you how to care for your lawn.
  • Richard Kestenbaum, Triangle: Returning to the Bonobos example, they were fairly set in their opinion that they would never have brick-and-mortar stores at the beginning of their journey. However, they obviously evolved, and now there have been many brands who have followed suit.
  • There is also the opposite that has become big: buy online and return in store.
  • Nordstrom has “neighborhood stores” that don’t have inventory, but you go there to pick up orders, drop off returns, and get fitted by store associates. 
  • The coffee shop example is interesting because now a lot of stores are doing it and it’s no longer really innovative. 

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