There will likely be one more big outbreak in 2021, at least in the home furnishings industry: merger and acquisition fever.
If you’re a buyer, there are a lot of opportunities out there; if you’re a seller, the timing to move on could never be better. “This is going to be a tremendous year for M&A activity—I think we’re going to see 50 percent more in 2021 than ever before,” says Randy Eller, president and principal of Tennessee-based Eller Enterprises, an advisory firm that specializes in the gift and home industry and has been involved in some of the most high-profile deals over the past decade.
A number of key factors could be pointing to an unprecedented level of activity in the buying and selling of companies. A big one? Supplier companies are rethinking what they want to do with their businesses.
“It’s real important to talk about cause and effect—and the cause for all this activity is that everyone has blown up their business models [during the pandemic],” says Eller, who worked as a senior executive for several suppliers before establishing his own consulting business. “Suppliers know that to stay in business, they will need to build up their infrastructures and technology to be able to sell direct to the consumer [in addition to maintaining their wholesale business]. If you decide to make that investment, you’re looking at the future.”
Company principals who aren’t willing or able to make those kinds of investments—whether because of a lack of working capital, the age of the owner, or succession plans—will be looking to get out. “There will be a lot of sellers this year, and the companies that have done well are going to be looking for acquisitions.”
Eller forecasts that money will not be a problem in deal-making in 2021. “There’s never a shortage of capital when there’s a willing buyer and seller,” he says. “There’s an unlimited amount of money [available to chase deals].”
Buyers and sellers come in all shapes and sizes, he says, and the deal that makes sense for one player may not be right for another. Eller sees both strategic partners and private equity firms as likely buyers, “pretty evenly split this year.”
Outside investors generally want to buy companies with annual sales of $75 million and up, and they are generally willing to pay more than strategic buyers. The latter will do smaller deals, but the type of company they want depends on the buyer’s plans: If they have a two-year window before they want to get out themselves, they may want only solid, profitable purchases. If, however, they have a longer window—say, five to 10 years—they may look for a fixer-upper if the price is right. Sellers need to understand these dynamics, Eller says, and also decide if they want to stay with the company after the sale or just take the money and get out. If they stay, they need to consider who their partner (and most likely boss) will be.
Either way, Eller sees plenty of deals all around this year throughout the home furnishings and gift sectors. But he doesn’t see it as the end of the smaller, entrepreneurial startup. “This industry has always been nurtured by creative people, and that’s not going to change,” he tells Business of Home. “Everyone is always looking for the next hot thing, and it will always be out there. That’s what’s so good about this industry.”
Homepage image: Gui Yong Nian | Adobe Stock
Warren Shoulberg is the former editor in chief for several leading B2B publications. He has been a guest lecturer at the Columbia University Graduate School of Business; received honors from the International Furnishings and Design Association and the Fashion Institute of Technology; and been cited by The Wall Street Journal, The New York Times, The Washington Post, CNN and other media as a leading industry expert. His Retail Watch columns offer deep industry insights on major markets and product categories.