April 27, 2023

April High Point Market 2023

Stump M&A Advisory Team at High Point Furniture Market

Our team spent six days in High Point for the twice a year show. This is a one-of-a-kind market, where 60,000+ visitors descend upon a small North Carolina city and explore approximately 12 million square feet of exhibition space for new furniture concepts and products. Spring weather made the event fun and festive (although Saturday wasn’t so nice with cool temperature and rain!). Attitudes were upbeat despite the mixed macro-economic picture, high interest rates, challenging geo-political environment, and the post-COVID consumer spending more on services and experiences than in recent years. Most furniture executives are cautious about 2023, but almost the entire industry felt that better days are ahead, likely beginning later in the year. Key issues discussed were:

Sturdy Act

At the eleventh hour the issue was satisfactorily resolved allowing for the voluntary rules to prevail, versus the complex rules enacted earlier by Congress. Kudos to the AHFA for their guiding hand in reaching this decision, and to the political leaders that heard and acted on these concerns. A crisis has been averted.

Growth vs Profits

In recent months, the picture has become clearer: the world truly changed last March 2022. Russia’s invasion of Ukraine coincided with surging inflation, persistent supply chain challenges, and a slack in consumer demand – while the Fed began raising rates. Our industry had to adapt to a lower growth trajectory and re-focus on costs after 2 years of euphoric sales volumes. Likewise, the investment picture become more muddled; capital from many lenders become harder to attain, most consumer Private Equity (PE) firms took a pause on new investments, and venture capital (VC) money for innovative new start-ups became mostly unavailable. Business failure was an inevitable result of these trends, including several highly regarded and visible brands (e.g., Interior Define; Made.com) while stock prices for higher growth/e-commerce enabled businesses (e.g., Wayfair, Overstock) plummeted from record highs. However, many businesses in our industry have proven resilient, retrenched after a challenging 12 months, and are prepared for brighter days ahead – hopefully later this year!

Banking

Lots of chatter this week about First Citizens Bank (based here in North Carolina) acquiring Silicon Valley Bank, following their 2022 acquisition of CIT Financial. CIT remains a major lender to the furniture industry, and we have seen them become stronger and more aggressive because of this acquisition. We imagine the same will be true for SVB. We also hope the regional banks can return to their business of deploying capital for our industry after these last few shaky months.

Showrooms

With Hooker taking a large and bold position in Showplace, we saw a cascade of other new showrooms, with lots of attractive features to entice buyers to come and purchase. Did you visit the new Phillips Collection at the corner of Main and Commerce (the old Radisson ballroom area)? We loved seeing these new spaces merchandised so well and look forward to seeing more new exhibits at the fall market.

Hall of Fame

What an amazing new building for hosting industry events and honoring the people and companies that have helped to build this industry we all love. Huge thanks to the leaders of the Hall of Fame, and its many donors and supporters, for making this happen.

Mergers & Acquisitions

Deal flow has generally slowed due to the choppy economy; however, our M&A activity has remained at record levels due to several factors:

  • Many baby boomers do not have succession plans and are tired of the demands of running a business.
  • Struggling companies are forced to sell due to lender/shareholder issues.
  • Digital-first/E-commerce companies seeking partnerships with strategic parties that can help with product sourcing, manufacturing, and other strategic initiatives.
  • International companies seeking North American assets to balance investment portfolios.
  • Many small companies want to sell or partner with larger companies so they can grow faster and get access to certain resources.
  • The hospitality sector is booming after a difficult COVID period, and we have several active transactions in this business channel.
    • We will attend the Las Vegas hospitality show in early-May and expect to announce one transaction prior to this market.
  • The Office Furniture industry is challenged in the post-COVID era as the work-from-home movement continues to impact office occupancy and surging interest rates have tamped down new developments. This has led to a shortening of lease terms and forcing businesses to right-size office space requirements. Major mergers of Herman Miller-Knoll and HNI-Kimball lead us to believe there will be additional M&A activity in this sector.
    • We will attend the Neocon office show in Chicago in June – always an exciting time to see friends, products and tee up new transactions.

Quote of the market:

"Invest in people and build a culture of excellence," suggested one CEO, as he recommended the book, "The 6 Types of Working Genius" by Patrick Lencioni. Get the book, read it, and deploy its principles.

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