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Why Investors Are Shopping for Consumer Retail

2021-11-02

Amid a record-setting IPO market, one group of companies going public stands out—the makers of things we use in our everyday lives. On this episode, host Allison Nathan speaks with Jennifer Davis and Vishaal Rana from the Investment Banking Division’s Consumer Retail Group about why investors are enthusiastic about consumer goods and services.

This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This is exchanges the Goldman about Nathan senior strategist in common research, the ip or market continues to set new goods and many other companies going public are making and selling things that we recognise and use in our everyday lives to better understood and why the ideal market for consumers startups is stronger than ever were speaking with and Davis, and the shall run from the consumer, which our group within our investment banking division, Jan Fischer, welcome back the programme thanks for having us Allison. Thank you. can we want spoke with you, and we shall, in April, when consumer retail companies or really just emerging from the pandemic and just starting to tap the capital markets the way to invest in their businesses today. We're ok seeing as well as consumer oriented companies going public. Put this all into context for it
How does the activity compare with prior periods and once derived in the recent surgeon activity and adds a break western Allison and one more happiness hawks for today, because it's an exciting topic, it has been an increase. about a year and the consumer retail IP upmarket. So thus far, we have seen fourteen billion dollars in issuance overall to put that in contacts that is three and at times last year's level, which itself was a record setting you're, so really incredible in terms of overall volumes in terms number of contemporary type? Has we ve seen twenty eight so far this year and again, that's higher than the last watermark of thirteen consumer retail I've used, which was back in twenty twelve seven, you just about the volume of transactions and dollar issuance of transactions. It's been nothing short of incredible comments. Acts we were proud to have led all a
one point? Eight billion dollar ip out, which itself was the largest? U S, consumer reach, how I go in over twenty years, so across the sector, it has been an incredible level of activity. I think there's a few things driving that one nurse and a lot of investor enthusiasm across sectors when you think about the combination of pent where demand high stakes the rates and strong wage growth that all translates into consumer discussed dollars that need to be put to work and need to be spent, and the consumer, sector is a great way to plant that dynamic, and the second thing is across the board: the performance, of those ideas, has actually been quite strong across the industry. So when we look at home type your performance in terms of day after month after performance, investors have seen good returns. What has suffered in the recent past. However, in the past couple of weeks and months, is some top your performance during the actual period, so that something that were continuing watch carefully
so you mentioned shrine Timothy across the sector, but are there are specific areas that the activity has particularly picked up and I would say, a crisis actors, consumer retail, we ve seen interest in activity so when you think about apparel history and footwear. The shop by that I'm running and the worthy Parker Canada, China he'll talk about as well as a k, a Brad's. We ve seen it in view I mentioned immense and but you also say European black center. We ve seen in Hungary. So Gunnar and Weber in terms of people investing in their homes, we ve seen it fitness and wellness, so exponential fitness Ex Forty five lifetime fitness and the third beverage and restaurant space. There has been a whole host of activity to so first watch dutch brothers, crispy cream, salvos doll, Zambia, really it's been very right based across all consumer retail sectors and
mid. The surgeon activity were actually seen. Consumer regional companies looking at new ways to go public so we ve had some direct listings, Wormy Parker chosen RO last month. Why would some companies choose to pursue that route versus the traditional ip up. Maybe you can answer that? sure our great question: all companies have unique needs and the ip until the last few years has been. Some what formulaic and how they take companies, public and so do? I listings about two major factors for the driver: the interest in this style of going public. Someone is the art of the company and number two is the specific needs of the company when they're going published in another, What I mean by that is not a company just a private for much longer huge amounts of private capital. That's out there, and public crossover investors like the daily in terror price, so called classic public investors who are investing in private companies much earlier
We certainly saw this new technology sector for many years were now sort of seeing than the consumer sector as well, so that the Ark The second part on the needs are private company, many private companies because they been well funded by somebody's larger institutions. They may not have the need for a lot of primary capital right now. They may already have a good shareholder base because I made like the delegate the bastard they might have, because they stay private, much longer, he's didn't need for living did for some of their shareholders or further, employees till the direct listing pounds and those for a scenario is the direct listing, provides maximum flexibility for shareholders, including employees. There is no lock up. There is an immediate market based pricing out I'm there's no, so called IP or discounted price Stop led by underwriters, has done directly by the market, so it tends to work, really well Allison, for, I would say, sophisticated company,
because a lot of the work and the direct listing is done by the company itself with the help of the financial environment, which is what we ve been doing. It don't work well in companies that don't have a need for primary capital. The average cash I, once in the direct listings that have occurred, has been about a half a billion dollars and attend to work well in companies that are broad shareholder base, who already have a real Feel evaluation, so when company is listed. There's is already a sense of where they would sell and what they feel up. No, where the market a spin and look what Parker, which you refer is unique and that its first consumer company to go public via direct listing all the first public benefit corporation to go public quite proud of that, and there was a tumble twice when we met eleven direct listings up? We expect more. Companies to consider this alternative, though it will still remain a pretty small percentage of the overall ip about conflict and we spoke with some of your colleagues on this path cast about the rise of corporate investors and strategic transformation. So why would come?
Chinese, decide to go public at all. Instead of pursuit a sale today, especially with the past, but the pirate taxes down the line and the great question simply put in the recent past. The public markets have been paying outsize multiples relative to the private It's so as an illustration for that right now. That's he bs currently trading at about twenty two times forward. P! That's compared to a long term outrage about seventeen times, so five multiple point premium to long term averages and the public But while the discussion here today has been on the IP markets, wish lose sight, but the Nay markets have continued to be incredibly strong, so emanates both in terms of dollars and deal count is up over two hundred percent euro per year. So there's continues to be an incredible amount of activity, I would say in both products and wet the short I can it has to. a lot of our clients. There are many dual track: breast
cease being explored, and so companies privately going down both paths and exploring one versus the other to maximize optionally and pricing township? You talked about some of the drivers behind this surgeon activity. We have obviously seen this pendant savings and economic reopening, providing a big boost to the sector, but it's been bumpy ride. We ve had the delta variant spent this fall, but now seeing more concerns about inflation. How do you expect this to hold up among these risks. Delta It's clearly a huge worry for our sector, especially as first back to school now holiday approaches, and so what was initially a worry around another wave of infection and potential locked downs has actually quickly pivotal to other related it backs, and I would put those in a bucket of labour shortages supply chain challenges and the resulting potential inflation that could be
and transitory nature, and so on the supply chain, I would say all of our retail clients- are seeing had winds from supply tape. There seem rates from shipping. Eight hundred twelve thousand percent higher than brief endemic levels, GS, research, has noted that companies that are better insulin It have scale balance country, exposure, more limited empire apartments were negotiated, their contracts early and obey. our side. There is infection, related reluctance to return to work in some cases, and so that continue to suppress labour market participation overall and further exacerbated the supply chain challenges. Worry is that the combination of these factors could lead to more than transitory inflation and that will later potentially higher prices for consumers, and so it something that I would say across the board. Our consumer and retail clients are watching very very closely.
I shall let me talk to beyond these near to Gogol concerned one one of the Trans. I think that we touch on in so many of our podcast is technological change and how that is impacting sectors and the economy more broadly, so you, Basically, we are seeing a lot of benefits to direct consumer companies and increasingly companies with an army channel approach, as we seen technology accelerate during the pandemic. What are the key to the logical trends that are shaping the retail sector and consumers experiences There's a lot of different technology changes and trends that are going on, but would say to keeping. Blurred lines, meaning Customers are shopping online through market places, traditional retailers directly with brands, but there also doing it symbiotic we with physical stores, so yes trapped. You stole prior to the pandemic. and then further exacerbated by the pandemic,
We sought to see this relationship between be online it presents along with the physical store becoming even more relevant to create ubiquity for customer and allow the customers shop wherever they want to somebody's redressed. You know, on the last ass we did, but if you look at on running as an example, which is the very successful idea from this year. One of the things that's interesting there is they have a split up. Sixty percent, approximately also forty percent approximate directed consumer, and the rationale without, is having multiple distribution points to meet the consumer wherever he or she may be ended by technology, and so you can engage with the product through your mobile device. You can go to the store. And have an interactive experienced as well, and it Knowledge has made that happen in a way that has brought the product wife, so they mostly blue line to try to meet customer needs, but optimize that distribution opportunity, let companies scale and draw down
cost of acquisition and I'll give you in order to equip examples like when you look at Mikey. In twenty ten was fifteen percent directed consumer today, its approximately forty percent Disney plot exist two years ago and is a hundred fifty nine subs now so pursued Those up is that wish to key themes. Witches brand and customs Experience are what our group is about. The customer retail sector cares what brand and customer experience and our technologies a tool to enhance those two things- that's the ultimate b, because these are not technology companies, ultimately, their use. It acknowledged the tool don't have spread across more, so you both up, that opportunities you talked about some risks way due the outlook from here for twenty twenty two and beyond it. Maybe I'll start- and I thought the shawls characterisation of brands and customer experience- was a really helpful frameworks and think about how we are advising our clients. I think the other one that we took
about in terms of mega trends, impacting our clients falls in four buckets one digit they shed and so the breadth of e commerce. Clearly here to stay, and so our companies modifying both their front end and back and infrastructures to invest into that and make sure they can address that very high increase demand this and his round help and while Miss and again there is much more than a cute focus. How does that affect our food choices? Are business choices, how we modify our homes and our offices in terms of addressing that third as around. Yes, she and I think, there's a big focus around climate change, sustainability, social equality, indoctrinated since so how to come these operate in order to address those needs and consumers make their buying decisions based on that and then a fourth related. but these two, his casual evasion. I think we can all a test that the day of high heels and formal suits is probably day in and day out. A thing of the past will still exist in some way, but how do we think about her
I'd choices around that to both in terms of how we work and live differently, yeah and what have I'd gender. That is when you think about the evolution of capital markets and deal activity in the consumer retail sector. What we're seeing is that Increasingly, there was a proliferation of companies that are created, reader, fragmented greater specialization, so customer and consumers want personalization. They would like a product that does x and Y and that creates fragments. Isolation and the challenges for those companies scale? The either need lots of capital which could come through an appeal in whatever form or emanate, and so on. Expectations is that, as you should have seen, this greater fragmentation, greater specialization, a proliferation of companies a lot of large incumbents that are flesh with cash that emanate or there's the equity market which, while there
gonna be stops starts as we continue to sort of faced backroom challenges. Ultimately, the linear trend continues to be in this sector that the opportunity several people I wanna go public remains quite robust. well. I will certainly be interesting to see how the space of As for joining us on the programme agenda, Michelle Sounding travellers patently disappears. Exchanges of Goldman Sachs things for listening out of you join the show. We hope you describe Apple, Pat Cox. And they were waiting and comment. This podcast was accorded on Tuesday October twelve twenty twenty one. All price references and market forecasts correspond to the date of this recording. This podcast should not be copied, distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommendation from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty
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Transcript generated on 2021-11-02.