With Choppy Waters Ahead -- Which Way to Sail?
Panther Equity Insights -- a private equity newsletter covering all things IT & Telecom, Tech & Business Services, eCommerce and Markets.
Happy Wednesday folks! Welcome back to this week's edition of Panther Equity Insights, the bi-weekly newsletter from Panther Equity Group.
In this issue, we’re giving you insights and updates on the industries we specialize in: IT & telecom, tech & business services, and eCommerce. We’re also covering some broader macro commentary that we believe will be valuable to our network of readers.
Before we begin, if you’re a company Founder / Shareholder interested in working with Panther, a deal maker interested in connecting or with a deal to share, or an Operating Executive looking for a part-time, full-time, or Board Level Role — feel free to reach out and get in touch with us!
Market Chatter
America’s Labor Crisis: The Industries Feeling the Pinch
Upon closer examination of the current US labor force, it becomes clear that a more fitting term to describe the current state of affairs is "The Great Reshuffle." Hiring rates have been surpassing quit rates since November 2020, indicating that a significant number of workers are leaving their current jobs while an even greater number are being rehired elsewhere. The U.S. Chamber of Commerce recently reported that the US is currently experiencing a labor crisis, with millions of job openings remaining unfilled. A few key findings that the report outlined:
Hospitality and leisure industries face extreme labor shortages
The leisure and hospitality industry has had the highest quit rate since July 2021, consistently above 5.2%. Paired with hiring rates that have continuously outpaced “quit rates” since the pandemic (hovering between 7-9% v.s. a national average of 3.9%), the likelihood of a labor turnaround is low.
The quit rate for the retail trade industry isn’t far behind, with rates hovering around 4% in the Fall of 2022.
The labor shortage can be attributed to a decline in labor force participation
The labor force participation rate has dropped significantly in recent years, with fewer people actively seeking employment. That being said while some industries face intense labor shortages others have a surplus of workers. For example, in the transportation, construction, and mining industries, there are more unemployed workers with experience in their respective industries than there are open jobs.
Remote work is a new paradigm for labor participation
Remote work has opened up job opportunities beyond traditional geographic boundaries, which has led to increased competition for talent in certain industries. The report noted that the number of remote workers has been trending down recently, due to a tightening labor market and stricter corporate policies.
Panther Equity’s outlook:
As the labor shortage continues, companies should look at both automation and digital transformation as opportunities to deal with the macro headwinds & labor considerations. For some industries (i.e., manufacturing and logistics), automation has already been an increasingly popular solution for years. With the current labor shortage affecting a broader range of industries now, more companies are exploring automation options to address the growing gaps.
If you’re a Founder, Executive (i.e., CFO, COO, CEO, CRO, etc.), or Company Shareholder interested in brainstorming how / where technology, RPA, digital transformation, cloud, or software could help your organization — please feel free to reach out to Panther. We’re always happy to help brainstorm, introduce you to Operating Partners in our network, and be a helpful sounding- board.
Economists Predict at Least Two More Rate Hikes in 2023
With inflation still at more than twice the Fed's 2.0% target, 46 of 86 economists in the latest Reuters poll predicted the U.S. central bank will go for two more 25 basis point hikes, in March and May, not just March.
Several factors are driving the anticipated rate hikes, including concerns over inflation, which could be exacerbated by supply chain bottlenecks and rising energy prices. Many respondents also pointed to the strong economic growth and the low unemployment rate as justification for further rate hikes.
Some other interesting takeaways from the polling:
Over two-thirds of respondents in the poll forecast no cut this year as inflation was expected to remain above target at least until 2024.
Among pollers, there was a median 60% probability of recession in the coming year, which was upgraded slightly from 56% in January.
When asked which was more likely to compel a rate cut, 21 of 35 economists said a significant fall in inflation, with 14 saying a significant rise in unemployment.
It’s anticipated that the markets will continue to be volatile with the cost of capital expected to only increase in 2023. Amongst GPs, there is a clear focus of attention on the impact that rising interest rates will have on the deal-making environment. In a more risk-averse environment, debt financing will be harder to come by, especially at the upper end of the market.
Panther, our Operating Partners, virtual CFOs, and equity LPs are aware of the challenges to come and remain both creative & flexible in deal structuring to find bespoke solutions for companies we are talking to.
The Future of Shopping: What it Means For eCommerce
eCommerce remains a dominant force in the retail landscape, accounting for 47% of retail growth by 2027. According to a recent Forbes article, there are three key e-commerce trends to watch out for in 2023, which have the potential to change the way we shop online. Here’s a closer look at these trends and the data behind them:
Personalization
Personalization is increasingly becoming a priority for eCommerce companies, with more and more consumers expecting tailored experiences. Starbucks is a prime example of a company capitalizing on customization. In their recent earnings calls, the coffee giant noted that their app personalization initiative was “the single biggest driver” of increased spend per customer in history.
Gamification
Low conversion rates are plaguing eCommerce players. Given a weakening economy, inflation, and a return to in-store shopping, retailers are pulling out all the stops to help engage customers. According to a recent report from Euromonitor, 75% of digital consumers abandoned an online purchase in 2022.
Sensory shopping
With a return to retail shopping in a post-pandemic world, eCommerce brands are embracing immersive visual and auditory content to help keep customers online. Not to mention the web3 tech stack that is being utilized to offer a more immersive experience for online shoppers. A recent HBS report noted that multi-sensory shopping experiences can increase sales by up to 10%.
How will this impact the eCommerce market?
Companies that want to grow & thrive online have to proactively target, acquire and convert new digital consumers who have a "shrinking" wallet. Now more than ever, it’s important for companies to understand digital trends and shifts in order to gain a competitive advantage and better serve customers.
At Panther, we continue to track & hold closely held relationships with both digitally native (online only) + retail-based companies looking to navigate the choppy waters ahead. If you are part of an eCommerce company or know of one that would like to discuss plans for marketing, expansion, or financial planning for 2023 / 2024, we’re always happy to connect.
About Us
Panther Equity Group is a private equity firm focused on making investments within the IT & Telecom Services, Technology Services, Business Services & eCommerce verticals.
Our team and Operating Partners have decades of experience within the mentioned verticals along with a vast network of experienced operators and LP investors.
We have the Operational, Technology, M&A, Business Development, and industry-specific Strategy expertise to help companies accelerate their growth and reach their full potential. Learn more about Panther Equity Group by heading over to our website:
A Trusted Partner For Founders, Companies & Entrepreneurs
M&A: Notable Trends From 2022
Global M&A activity remained above historical levels
According to a Pitchbook report, the first half of 2022 saw a total of 24,702 deals completed, which represented a 7.3% increase from the same period in 2021. In terms of deal value, M&A activity reached $2.8 trillion in the first half of 2022, up 21.2% from the same period last year. This is no surprise as there is still a significant amount of capital available for M&A deals, despite ongoing economic uncertainty.
Megabuyouts cooled significantly in 2022
While M&A activity overall remained solid, it's worth noting that dealmaking for outsized M&A cooled in 2022. Dealmakers completed 389 deals north of $1 billion last year. That compares to 646 transactions in 2021. Tightening balance sheets along with the bank-leveraged loan market essentially drying up were 2 key reasons for the drawdown in mega buyouts.
A strong US dollar played a key role in global M&A for US firms
One interesting trend to emerge was the role that the strong dollar has played in helping US firms hunt for deals overseas. In the first half of 2022, US firms completed 3,598 deals worth a total of $555.7 billion. Of these deals, 1,298 were completed outside the US, with a total value of $236.9 billion. The strong dollar has given US firms a competitive advantage in overseas dealmaking, allowing them to leverage their currency strength to secure attractive deals.
Outlook for 2023:
While global M&A activity remains solid, there are a lot of macro headwinds that could have an impact on M&A activity in 2023. With a higher cost of debt, softer bank appetite to lend on LBOs, large ‘bid-ask spread’ on valuation between investors and sellers, and uncertainty in the economy to come — 2023 will bear fewer deals vs 2022… however, certain industries should still be very active (Healthcare, B2B Services, fragmented Consumer Services, Technology, IT & Telecom, etc.). Deal creativity and trust between investors and companies will become increasingly critical to deals crossing the finish line.
Source: Pitchbook
Our Preferred Investment Criteria 🎯
Industry focus: IT & Telecom, Business Services, and eCommerce
Size: EBITDA of $2 million – $12 million / $10M to $100M enterprise value
Geography: U.S. or Canada headquarters
Target Transaction: Majority, significant minority, and structured equity investments
Business Profile: Founder or closely-held ownership with an experienced management team
If you are a company Founder / Shareholder looking to sell or recapitalize, we encourage you to reach out to us. We would love to learn more about your company and explore a potential investment opportunity now or in the future.
Industry Commentary
Software: Revenue Growth <> Efficiency
MSPs: 12 Habits for MSP Growth in 2023
eCommerce: Operating at “default Zombie”
Executive Hiring:
Private Equity: Global League Tables (2022 Annual)
Final Thoughts
Thanks for joining us for another edition of Panther Equity insights! Whether you’re a business owner, current or prospective investor, or operator within the space -- we hope that you will find tremendous value in our newsletters.
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About Panther Equity Group
Panther Equity Group is a private equity sponsor seeking to provide capital, strategic support, and resources to healthy & well-positioned private companies in the lower middle market. We typically focus on companies with $2 million - $12 million in EBITDA and seek to make majority or significant minority equity investments.