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E-commerce drives M&A, PE infusions to home furnishings

HIGH POINT — Consumer enthusiasm for all things home-related during the pandemic and a demonstrated willingness to make those purchases online has inspired a spate of private-equity interest and merger-and-acquisition activity in the home furnishings industry this year.

See related story: Strategic plays in e-comm position companies for long haul

Significant transactions of that nature started early in 2021 with Canadian RTA producer Bestar’s acquisition in January of another flat-pack major Bush Inds. with an expressed focus on expanding e-commerce business.

August alone saw a couple of significant deals. Brand aggregator Trademark Global acquired flat-pack and occasional resource Bolton Furniture. PE firm Prospect Hill, which has a majority stake in RTA manufacturer Walker Edison, acquires a similar position in another e-commerce-focused resource, Lifestyle Solutions.

Earlier this year in May, Prospect Hill kept its majority position in Walker Edison while getting another private-equity infusion from a significant investment in the company Walker Edison, Blackstone Tactical Opportunities. Maybe you are interested wall to wall carpets in Dubai.

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Don’t look for e-commerce-related M&A/PE action in home furnishings to fall off any time soon. Accelerated consumer acceptance of online purchasing during the pandemic and the performance of the Wayfairs of the world has piqued the interest of private-equity players when it comes to opportunities in furniture. It also has furniture vendors and retailers well established in the traditional realm looking to broaden their reach.

Wayfair, for example, has established itself as a home furnishings brand in its own right and, after years of big revenue gains accompanied by significant losses, turned its first profit in 2020’s second quarter, netting almost $274 million on sales of $4.3 billion for the period. Since its 2014 initial public offering, revenue has recorded a compound annual growth rate of 45% through 2020, to north of $14 billion, a 16.7% share of estimated online home furnishings sales in North America and Europe according to Wayfair’s second-quarter 2021 investor presentation.

“When you see that much growth, (e-commerce) will be absorbing more output from our wholesale industry,” said Tim Stump, president of M&A specialist Stump & Co. “Any time you see professional money people coming into the industry you have to take note. They see something very positive in that e-commerce demographic. If you follow the money, we’ve seen a lot of that this past season, and we expect that to continue moving forward.”

A couple of Stump & Co.’s recently facilitated transactions, including the Trademark/Bolton deal, are firmly related to expansion in the e-commerce realm.

Two sides the equation

Jerry Epperson An insider’s view“Obviously the e-commerce side of our business is growing faster than traditional retail,” said industry analyst Jerry Epperson of investment banking and advisory firm Mann, Armistead & Epperson. “If a company has an accomplished e-commerce strategy, it makes it more valuable if they decide to sell.”

Epperson believes investment in furniture’s e-commerce realm has two sides.

“There’s always a catchy item of the moment, and people want to add that to their story,” he said, and right now that’s e-commerce, which is a particular inspiration for some of the private-equity transactions. On the other hand, “Strategic buyers tend to be more knowledgeable about the industry, so they look at this differently than a PE firm might.”

Examples of the latter would be the Bestar/Bush deal or La-Z-Boy’s acquisition of Joybird in 2018 (See sidebar: “A wider reach”).

“Bestar buying Bush had a private-equity component, but it’s still more of a strategic move,” Epperson noted.

Stump also pointed to the Bestar acquisition of Bush Inds., pointing out the significance of Bestar rebranding Bush as “eSolutions Furntiure Group.”

“That’s telling a lot about the company and where it’s going,” he said.

While a lot of recent e-commerce-related activity has been on the vendor side, Epperson said the same dynamics driving that action apply to retail as well.

“If a retailer has a sound e-commerce strategy, that will be a plus” for potential investors or buyers, he said.

Moving forward, a strong e-commerce presence will remain a draw for potential investors or buyers, but more of those deals could end up more strategic vs. “hot-ticket” in nature.

“E-commerce has made such obvious gains in the past 10 years that I think maybe the easy growth has already been achieved, and we’ll see some leveling out of that growth,” Epperson said. “It will keep growing relative to other retail but not double and triple growth for other retail.”

E-commerce drives M&A, PE infusions to home furnishings