Private equity firms this year have slowed down their shopping spree in the consumer staples sector—which consists of companies selling and manufacturing goods purchased for immediate, everyday use—amid macroeconomic headwinds and volatility in the financial markets.

So far this year, PE firms have participated in 121 buyouts in the space—mostly consisting of food, beverage, and personal and household products—worth $14.2 billion, according to PitchBook data. That is down about 32% from the same period last year, which recorded the highest deal value since 2018.
   

The sharpest decline came in food products, where deal value fell to nearly $6 billion this year. It was the most active segment of the sector in 2021, with just shy of $38 billion PE deals completed in the year.

The slowdown is due to a series of factors including supply chain issues, the pressure on private valuations and the tightening of the credit market.

"We're also seeing a gap in valuation develop between the expectations of sellers and buyers," said Christopher Sand, a managing director in the buyout team at European private equity firm Ardian. "There'll be a number of transactions that don't close for that reason."

"A large number of groups, both on the sell side and the buy side, are waiting for some of the volatility to subside," he added. "A lot of people are hopeful that it will be later this year when we get a better sense of where things will shake out. There's a lot of uncertainty in the market right now."

Tight credit conditions in the leveraged loan and junk bond markets—which are often tapped by PE firms to fund leveraged buyout deals—also threw a wrench to some recent deal talks.

Reckitt Benckiser Group, the British owner of baby formula brand Enfamil, was struggling to sell its infant nutrition unit, amid a valuation disagreement, a shortage of available funding and the baby formula crisis, according to multiple reports, with only a small number of private equity investors having followed through with bids.

However, it doesn't mean investors would completely shy away from this market. There are opportunities PE firms are pursuing.

Companies that are able to maintain a resilient supply chain are valued more by investors currently, said Steven Loeffler, a principal at MidOcean Partners.

In addition, PE investors now will be more inclined to conduct roll-up transactions—where investors consolidate multiple companies into a larger entity—rather than acquiring new platforms.

"In times like these, I think you will see people focus more on their own portfolio and invest within their portfolio, as opposed to more new platforms," Loeffler said.

Featured image by Bloomberg Creative/Getty Images

This article originally appeared on PitchBook News