Middle-market investment banking firm Capstone Partners released its April 2022 Outdoor Recreation & Enthusiasts Sector Update, reporting that heightened interest in outdoor pursuits has continued through early 2022 and driving what could be another strong year for the outdoor recreation sector.
The sector stood out in the consumer industry during the pandemic, attracting new customers and repeat buyers with a new drive for enthusiast activities and active lifestyles, according to a report.
Retention of this broadened customer base has been a critical focus among sector players, with effective inventory management and pricing actions on top of executives’ priorities amid elevated inflation and supply chain challenges.
Privately-owned middle-market companies with brand strength, robust direct-to-consumer (DTC) capabilities, and efficient supply chains poise themselves to gain valuable revenue opportunities this year.
The robust dealmaking environment in the Outdoor Recreation & Enthusiasts sector continued until early 2022, with 34 transactions announced or completed year-to-date (YTD), slightly below the record-setting pace in 2021.
Healthy valuations, aggressive competition in deal processes, and significant private equity dry powder levels created a favorable backdrop for privately-owned businesses pursuing a liquidity event.
Supply chain disruptions have challenged business owners, many of whom failed to fulfill sales orders because of constrained production.
Effective inventory management has proven to be a key focus for sector players, often favored by potential buyers in a merger and acquisition (M&A) process. Additionally, the current inflationary environment may persist in the near term, heightening the importance of proper pricing adjustments to maintain margins.
So far this year, private strategic buyers comprised most of M&A activity, making up 61.8% of total deals. Big players in the consumer sector are more likely to pivot their product portfolios to gain more exposure to the outdoor recreation sector.
“We are seeing rapid changes in the M&A markets for Outdoor Recreation brands and retailers due to a wholesale shift toward outdoor lifestyles and “mini excursions,” said Capstone Managing Director Ken Wasik, the lead contributor in the newly released report.
“The focus in M&A is moving toward essentials of enthusiast pursuits and away from big-ticket discretionary items. This is noted by the acquisitions of Osprey Packs for 13.5x EBITDA and Dorel Sports biking division for 11.3x, while Yeti, Thule, and Clarus are all trading publicly at over 13x EBITDA.”
Wasik said Malibu Boats is trading at 5.8x and MasterCraft at 5.4x, coming against a backdrop where many brands struggle with inflationary pressure on inputs and supply chain problems.
“One thing is becoming apparent. Higher gross margin brands will become even more valuable to buyers in this environment. Our recreation deals in the market during the first quarter have been well received and is a strong indication that the M&A markets remain very strong for outdoor goods,” he said.