Why M&A is Good for the Furniture Industry
Mergers and acquisitions (M&A) are key to a healthy economy, and the furniture industry is no exception. Over the past five years, M&A transactions have played a significant role in the evolution of the furniture industry, and they will continue to shape its future for years to come. This is true in good economic times and in some ways even more so during challenging macro-economic climates. Let’s review some of the impacts of M&A on our industry and our economy:
- Increased Efficiency: M&A can lead to increased efficiency and productivity. This is frequently described during deal negotiations as ‘operational synergies’. The basic concept is when two (or more) companies are combined, they can become more efficient than the individual companies operating individually. Great examples of this include leveraging expenses in HR, accounting, and technology. This has become even more important as compliance standards and technology/systems expectations have increased; these costs are better borne by larger entities. Look no further than the blockbuster MillerKnoll deal two years ago as a prime example of M&A fueling efficiency (a stated $100mm in cost synergies). And the recently completed Kimball/HNI deal leveraged a similar framework. Rock House Farms, the parent Company of family-owned North Carolina furniture company Century Furniture, is accomplishing this with wonderful add-on acquisitions like Hickory-Chair, Hancock & Moore and Classic Leather.
- Enhanced Capabilities: Through M&A, companies can acquire new technologies, new product categories and capabilities, and other valuable tangible and intangible assets. This can help them to enhance their capabilities and broaden their product range for customers. Perhaps the clearest trend over the last few years is with legacy manufacturers acquiring Direct to Consumer (DTC) brands, which can both new sales channels, customers and more into the acquiring companies orbit. Recent examples of note would be , such as La-Z-Boy’s acquisition of Joybird, Exemplis’ acquisition of Albany Park/Edloe Finch, and Bassett’s acquisitions of Noa Home.
- Job Creation: Mergers and acquisitions can lead to job creation in the economy. When strong and ambitious companies seek growth, they will need more employees to reach their objectives. It also gives greater opportunities for the acquired entities’ employees, who will have a larger organization (with potentially better benefits) to rise through. One great example is Samson Holding’s acquisition of Craftmaster Furniture, which has resulted in a doubling of revenue and employment during their ownership.
- Increased Investment: M&A can attract new investment and outside capital to the industry. Investors are attracted to companies and sectors that are growing and expanding, and one acquisition tends to beget the next. This is particularly true of Private Equity; our industry now has over 52 private equity firms invested meaningfully in the furniture industry. First comes the platform investment followed by add-on or ‘bolt-on’ acquisitions. We also see energy from international buyers in China and Europe, in particular. Again, Samson Holding is a perfect example of a step-by-step investment in the industry, with Universal, then Craftmaster, then Baker, which all led to expanded business and increased employment. The same is true with Markor and their systematic and smart acquisitions of Schnadig, ART, Rowe and Jonathan Charles.
- Intergenerational Liquidity and Continuity of Beloved Brands: M&A is a pillar of ensuring the successful transfer of family businesses when the next generation does not desire to assume the helm. This is going to continue to be a critical driver of M&A activity over the next decade as baby boomers retire. The furniture industry will be particularly impacted given the large percentage of family-owned businesses in the space. Hooker Furnishings has been a staple in acquiring family businesses over the years, such as Shenandoah Furniture, Bradington-Young, Sam Moore and Sunset West.
- Sale of Distressed Assets: Unfortunately, our industry is cyclical, and many companies can’t survive the downturns or the impacts of external events (COVID, $25,000 containers, port strikes, unavailability of foam for upholstery – are just a few of the recent disruptions that have pushed many in our industry into distress). We have seen the demise of many companies during the past few years, most notably United/Lane. Despite these failures, many other companies benefitted by picking up customers and employees. Difficult times bring a fork in the road for the strong and the weak.
- Rightsizing and refocusing on the core: M&A plays a key role in helping provide liquidity for companies seeking to de-lever or sell off unwanted or non-core assets and businesses. We are currently seeing many larger companies evaluating their portfolio of companies and considering selling off subsidiaries that aren’t performing or are no longer core to the primary business thesis. Wayfair recently announced the exit of some European operations, and several private companies have exited the outdoor/casual sector (and many others have entered the outdoor/casual sector). Focusing on core business is a critical part of success in challenging economic times like today.
We anticipate seeing a large uptick of M&A activity in the last quarter of this 2023, and particularly in 2024. We look forward to seeing the opportunities as they emerge. Let us know your thoughts!