Categories: Market, News & Events | Published: Apr 30th 2017
April 19-25, 2017 - Charlotte, NC
Quote of the Market #1: "Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds…and it won’t stop us at market either!” opined one industry veteran. “At least it didn’t snow,” he added. An apt and appropriate quote indeed, in light of the impressive new post office showroom that opened this market and the torrential downpours of Sunday & Monday that left few dry.
The weeklong Spring Residential High Point Market was upbeat and busy. The resounding feeling was that this market was a success, with the energy and enthusiasm of 2006/2007. We spoke with 200+ industry CEOs who described business as good in spite of a weak first quarter with some retailers. The strong economic climate is providing most companies reason for optimism, but with some confusion as to why the robust climate has not more thoroughly converted into stronger consumer confidence and furniture purchases.
Another contributing factor to the energy around the show was the completed and in-process renovations and new construction of showrooms, creating musical chairs of exhibitors’ locations. This indicates continued investments into High Point and optimism in the future of this market. It seems to us that there is a new Miracle Mile developing on Hamilton Street. More details on the specifics of the various construction projects can be found here.
Quote of the Market #2: “There has been talk of bringing in branded consumer product companies that want to expand into furniture to leverage their name… then it would be the Branded Boulevard,” enthused one industry professional.
In our conversations with industry CEOs several topics came up repeatedly:
- The Border Tax - This was a cause of severe consternation just a few weeks ago, but now concerns seem to have minimized. Most feel that the likelihood of a draconian border tax is unlikely.
- Labor – It continues to be difficult to find good labor for manufacturing facilities in many cities across the US. “It is not about quantity, it’s about quality,” opined one CEO. We are seeing many companies work with community colleges to re-start vocational training for furniture manufacturing.
- Wayfair/Amazon – These internet behemoths are continuing to make inroads into the furniture industry and represent the fastest growing segments of many companies’ P&L. However, they are burning a lot of cash to expand their market share. How long can that go on? There were rumors throughout the market about a potential Walmart acquisition of Wayfair, in the wake of Wayfair’s stock bump of 4% and analyst indications that they would make a good M&A target (more details on this story here). Stay tuned for the reality and repercussions of this rumor.
The Mergers & Acquisition market is hot. Based on our analysis in the last 15 months, approximately 10% of the furniture industry has changed hands. This has created the most compelling balance of buyers and sellers that we have seen in a decade. This energy and balance is due to three macro trends:
- Chinese Investors are seeking to invest in the dollar (exiting the RMB) and mitigate potential risk of a Trump border tax. This is leading the Chinese to have interest both in companies with strong brand names that can be exported to China as well as in companies with US manufacturing facilities (hard assets).
- Private Equity money is being unleashed as the appeal of the furniture industry has accelerated. Active PE firms in the space have purchased companies that appear ripe to be platform companies. Add-on acquisitions should be anticipated over the coming years.
- Strong companies are getting stronger and looking for growth. A perfect example of this is Hooker which reported impressive first quarter earnings and a significant stock price increase after the acquisition of Home Meridian in Q1 of last year. Acquisitions are proving to be viable and attractive paths to profitable growth.
Stump & Company has been pleased to act as an advisor in two transactions that have closed in recent months, Yixing Capital’s acquisition of Lexington Home Brands and Samson Holding’s acquisition of Baker Furniture.
The Mergers & Acquisition market remains open, and we are bullish on the coming years. These are exciting times to be in the industry. Give us a call if you would like to discuss valuation or a transaction in this fast paced and open environment.
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