Footwear’s Second Half Hopes for Deal-Making

The footwear deal market might have gotten off to a slow start in 2024, but the signs for a second-half turnaround are there — if the IPO market, the economy and interest rates cooperate. 

“There was a lot of optimism heading into 2024,” said Brandon Yoshimura, a director in the consumer retail group of Solomon Partners.

Part of this hope was rooted in the prospect of interest rate cuts from the Federal Reserve, which could still happen as early as this summer. These cuts would spur the M&A market by making it more affordable for would-be buyers to borrow money. 

“But we haven’t seen the floodgates open in the first half of 2024 in a way a lot of people predicted they would,” Yoshimura said, adding how a pressured consumer environment has also likely impacted deal-making in the consumer discretionary space.

“If the customer is feeling pressure, it makes it a harder transaction environment,” Yoshimura said.

But recent events suggest the foundation for movement is currently being laid, even if interest rate cuts are slow to come, as many on Wall Street are starting to fear. FN reported earlier this month that Canadian waterproof sneaker brand Vessi had met with potential investors and is contemplating what to do next. VF Corporation said in February that it would carry out a “strategic review” of its brand portfolio — and insiders have speculated that Timberland could be a likely contender for divestiture. Milan-based private equity fund Style Capital inked an agreement with Autry International to buy a 50.2 percent stake in premium sneaker brand Autry in March and kid’s retailer Kidpik and heritage shoe company Nina Footwear Corp. merged into one entity: Nina Holdings Corp, in early April.

A strong IPO market will help

Jennifer Kopylov, partner and head of consumer retail M&A at Goldman Sachs, noted that the conversations about consumer deal making are certainly happening. But it still remains to be seen if those deals will get done this year.

For M&A to see a robust return, Kopylov emphasized the need for a strong IPO market to help buyers and sellers understand the valuation of an asset.

“You look to the public market to get a sense for where public market valuations are and to give you some comfort about private market transactions,” Kopylov said. “If there is no real activity in the public market in terms of IPOs, that knowledge base is missing. And it’s particularly important and relevant for private equity buyers and sellers.”

With the exception of Amer Sports‘ IPO in February, the shoe IPO market has been quiet since Birkenstock’s October IPO last year (though Golden Goose is rumored to be working towards a public debut). But that could change in the back half of 2024.

At the same time, some consumer bands might opt for take-private transactions. In footwear, an activist investor of Dr. Martens was pushing for a sale of the public company earlier this month and Allbirds said it was considering its response to a recent warning from the Nasdaq about its stock price falling too low. 

What deals to expect

According to PwC’s 2024 consumer M&A outlook, there will likely be more fashion transactions throughout 2024 as brand owners look to review their portfolios and change their structures. 

“With consumer discretionary spending likely to remain challenged and elevated levels of distress likely to persist, the fashion market in 2024 will be increasingly polarized between winners and losers,” read the January report from PwC, authored by Hervé Roesch, PwC UK’s global consumer markets deals leader and partner. “We expect successful companies to leverage their balance sheets and operating platforms to pick up valuable brands.”

According to PwC’s 27th Annual Global CEO survey released in January, 52 percent of consumer markets CEOs said they plan to make at least one acquisition in the next three years.

When it comes to footwear, the most common deals types are typically brand trades, divestments or portfolio additions, said Frank Petraglia, consumer and retail deal advisory and strategy partner at KPMG U.S. While the strongest brands favored by consumers will be the most interesting targets, there are opportunities for potential bargain deals for struggling brands with strong identities and potential for reinvigoration. 

To that end, some companies have already been open about their potential to enter the right deal. For example, VF Corp.’s chief executive officer Bracken Darrell has been adamant that the company’s strategic review of its portfolio, which includes Vans, Timberland, Supreme and The North Face, will spare “no sacred cow.”

Petraglia said M&A opportunities in apparel and footwear will likely be driven by athletic and athleisure brands.

“Over the past several years we’ve seen several brands explode onto the scene, many of which may need support to transition from founder-led businesses to the next level as scaled market leaders,” he said “The additional capital required could come from a traditional M&A transaction, as well as from the public markets, where we expect to see an uptick of IPO activity.”

Private equity firms will play a big role in these deals on the buy-side, as they look for value, and on the sell-side, as they manage aging assets, Petraglia said. Global private equity dry powder — or unallocated but committed capital — soared to $2.59 trillion in 2023, which was up almost 8 percent from December 2022.

And according to a recent survey from Citizens bank, 72 percent of small- and mid-size businesses in the U.S. see private equity as a source of current or potential funding.

With the capital and deal appetite present, the ingredients for a robust market are there. Now, the stars just need to align to make the deals come to life.