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00:00And today's IC on consumer deals and our IC panel today, Eva Davis, Managing Partner in External Affairs at Winston
00:07Taylor,
00:08Tricia Glenn, Managing Partner from Advent International, and NOAing Head of Capital Markets from China Renaissance Global Markets.
00:15Thank you all so much for joining.
00:17Eva, let me start with you because last time we had talked, you'd said, look, my core recommendation, the most
00:21attractive target, packaged goods, it's all about protein.
00:24Are you still there? Do you still think that protein-focused foods is the most attractive thing in the consumer
00:28segment right now?
00:29Dani, I'm still there with protein, but I'll give you a broader theme this time as well.
00:34It's really health and wellness.
00:35And so health is no longer just a niche aisle in the retail store.
00:39It's really the lens through which most consumers are thinking about their purchases.
00:43So back to protein.
00:45They want protein at breakfast.
00:46They want hydration throughout the day.
00:48They want gut health at lunch and dinner, and they want to sleep well at night.
00:51So if you can lean into the health and wellness and provide that value and function to consumers, that's where
00:56the deals are.
00:57Trisha, let me bring it to you because Advent, obviously, very active with various consumer deals with you at the
01:03helm.
01:03What do you think is the most attractive segment right now to be targeting?
01:07Look, thank you, Dani, for having me.
01:10I agree with everything that was just said.
01:12I think in food, though, people want flavor.
01:14They still want to feel good about that opportunity.
01:17And so we are highly focused on those trends around wellness.
01:21And having said that, we're focused on foods that people want to eat.
01:25Our food portfolio today has brands like Duke's Mayo, Mateo's Salsa.
01:29These are high-quality ingredient brands, and they also taste really good.
01:33Ultimately, this is a little simple in the food space.
01:36Trisha, hold that thought because I want to come back to the mayo of it all.
01:38But, Anna, let me bring you into the conversation.
01:41And your exposure is really interesting because you look at both U.S. and more Asian trends, too.
01:45What are you seeing as, like, the bright spot in deal-making of what are attractive targets right now?
01:49Yes, very interesting.
01:50And I echo what Eva just mentioned earlier is that right now in the U.S., consumers are actually looking
01:56for premiums and value.
01:57And on the other side of the world, in China, consumers are actually looking into feeling good and also, like,
02:04emotional connection to the culture and heritage.
02:06Where we're seeing a lot of consumer brands' products right now are local brands instead of Western exporting into China.
02:13So we're seeing a trend of going opposite, China brand going global, which is actually 76% of the total
02:20market at the moment.
02:21Does that mean, then, Anna, that for maybe a Western company that wants to expand into China, they have to
02:26do it through deals?
02:28They have to be buying local deals in order to get into the market?
02:31Well, there are the West and East conversion story going both directions right now, right?
02:35So we are seeing, for example, actually, Starbucks are doing a 60% of divestment of their China business.
02:42And then Nike, most recently, they announced China termination of the two distributions most recently, right, just to bring everything
02:50in-house.
02:50So I think there are many different ways of story of how to structure a transaction.
02:55Eva, how are you seeing sort of cross-border deals and how they're shaping up and the attractiveness of not
03:00necessarily just growing a portfolio within the U.S., but looking to Europe and Asia and otherwise?
03:05So it's interesting. Most of our clients are actually looking more to North America and to Europe.
03:09So I can speak to that. And there's really two kinds of conversations going on.
03:13On the strategic side, it's much more about how do I reconstruct my portfolio, whether it's a geographic distribution channels
03:21offering different tastes and flavors and wellness in that portfolio.
03:25And for the private equity funds, it's much more about following consumer demand and where there's the growth in the
03:30demand.
03:30So if they can see attractive products, particularly more as an add-on, bolt-on acquisition under their existing portfolio
03:38in North America and Europe, they're going for it.
03:40Tricia, how about you? I mean, you are one of those PE funds.
03:42Is that the kind of dynamic that you're pushing when it comes to geographical exposure that you're seeing?
03:48We're highly focused on the global consumer landscape, and we do that out of local offices.
03:53So 16 offices around the world with dealmakers who know that market, understand the local brands there.
03:59I think these markets all evolve and change in different ways.
04:03But being able to have people on the ground who understand the culture and can interpret it, that is the
04:08safest way we've always found to invest in the consumer space.
04:11Tricia, let's get back into the mayo, because Duke's mayo obviously has a lot of branding power.
04:16But how do you sort of distinguish whether that's enough in today's environment when you do have a consumer that
04:21feels pricing pressures?
04:22Is a brand name enough, or are you concerned at all about consumers starting to trade down as they continue
04:28to be hit with inflationary pressures?
04:30Duke's is a great example of this.
04:32It's actually not an expensive product.
04:34And so you can get a high-quality crafted ingredient in a non-discretionary category at a good price.
04:41And so, of course, you always have private label, and there's consumers that need that.
04:45But generally speaking, consumers are investing more and more in that stay-at-home experience, elevating through condiments, through flavors,
04:53through sauces.
04:54And a brand like Duke's, I think, fits perfectly into that.
04:57And I wonder what you see, because you did describe a Chinese consumer that really wants that story, that brand.
05:01Is that present in the U.S.?
05:04In the U.S., I think you're either going premium, which is the luxury side of the business, as well
05:09as value.
05:10So we're seeing a lot of Walmart story, a lot of Costco story.
05:13That's where the consumer trends are going.
05:15And there's a significant lack of the middle market space.
05:18When you're in the middle, you kind of get squeezed out.
05:21So I think that it's almost like a barbell shape in the U.S. side.
05:24Eva, what are you seeing in terms of consumer demand?
05:26So in terms of consumer demand, it does go back to value.
05:29So they're thinking about functional foods and wellness and what experience does it bring me?
05:33They are willing to pay at different segments of the market a little bit more, but you really have to
05:38deliver on value.
05:39And so that's why it works for some of the legacy brands, and it doesn't always work for some of
05:43the legacy brands.
05:44And that's why you're seeing some of the strategic activity.
05:47Some are placing certain bets around those brands, and others are looking to diversify.
05:51Is beauty still a bit more acyclical than everything else?
05:54We're just listening to the L'Oreal CEO moments ago saying to Bloomberg, it's the lipstick effect.
05:58People still want little luxuries, even when the overall economy maybe isn't as strong.
06:02Is that still the case today?
06:03I think it's still a bit of the case.
06:05I do think there's much more activity in skin care around beauty than maybe the rest of the sort of
06:10kind of traditional makeup.
06:11And you also have to be able to deliver on your promise around the science.
06:17Tricia, let me bring you into this, because obviously Advent has exposure here.
06:21Your case study on Olaplex may be a good example of this.
06:24What are you seeing in terms of the beauty and more sort of wellness space when it comes to that?
06:29Olaplex and then also the skin care moment.
06:31We've just invested in a business called Salt and Stone in the premium body care space.
06:35And so I think beauty generally, consumers are absolutely still spending time.
06:40It's a category that allows them to invest back in themselves at a reasonable cost when times are tough.
06:45And it's ultimately about innovation.
06:47I think the hair care category, when we invested in Olaplex almost six years ago now, Salt and Stone in
06:54the premium body category now, you're seeing these new categories bring innovation, focus, talent, and ultimately products consumers can get
07:02really excited about.
07:03All right, only a few minutes here, but I'd love to kind of quickly go through the makeup of these
07:07deals and how they might like.
07:08And if I can start, look rather, and if I can start with you, where are the most attractive targets?
07:12Is it still privately held companies or is it things like take privates like we saw with Utz, for example,
07:17recently being bought?
07:18Yeah, I think great question.
07:20I think in the U.S. western side, we're seeing significant demand and requests in terms of sponsored back car
07:25vows in the CPG space.
07:27Some are majority minority control shift.
07:30You know, and the third segment that we're seeing is actually a lot of consumer products, consumer brands locally in
07:38China are seeking alternative going listing avenue, which is the Hong Kong-style exchange.
07:44So I think as a consumer investor, if you're leaving shares or HR or a combination of that route on
07:50the table, you're actually leaving multiple on the table.
07:53Interesting.
07:54Eva, public, private, where are the deals?
07:55We're seeing much more activity with private equity, and the private equity is really backing those innovative founders that have
08:01the insurgent brands.
08:02And when we're talking to our founders, it's all about how do I position for the best sale to private
08:05equity with maybe strategics to follow when they're trying to round out their portfolio.
08:09I love that because, Tricia, you're talking about innovation and what you want to seek out.
08:13Where are you finding that innovation?
08:14Is it taking companies private that are currently public or is it already privately held companies, rather?
08:21It's all of the above, right?
08:22We can take a deal in any particular structure.
08:25The key is, what is the product doing?
08:27Do the consumers love it today?
08:29And by investing, again, in this innovation piece, can we make them love it even more?
08:33Okay, just quickly, about 30 seconds each.
08:36Valuations, how are they looking in this space, Anna?
08:38Well, you have to take account of supply chain.
08:41You have to take account of a lot of the political risks and all pricing as the valuation key factor
08:47right now.
08:47They're not just a footnote.
08:49Eva?
08:50Same story in valuations.
08:52You know, consistent, stable cash flow, not a lot of spikes, as well as seeing a lot of customer longevity
08:58and loyalty.
08:59Those are getting in highest value.
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