Market Monitor: Personal Care

Market Monitor: Personal Care

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Market Monitor: Personal Care

Strong Rebound and Growing Opportunities

After a slower 2023, U.S. Personal Care M&A activity rebounded sharply in 2024, with 55 closed transactions, marking a 49% increase over the previous year. A significant portion of these deals was driven by private equity, signaling positive trends for the broader M&A market. Looking ahead, the outlook for 2025 remains strong, driven by several key factors.

Strong Growth in Beauty Care Transactions

  • Beauty Care: Transactions in the beauty care sector nearly doubled in 2024, reflecting the sector’s resilience.
  • Market Drivers: The easing of inflation and declining interest rates are benefiting the consumer discretionary sector.
  • Notable Deals:
    • Helen of Troy’s acquisition of Olive & June (nail care brand).
    • TSG Consumer’s investment in Summer Fridays (premium skincare brand).

Increase in Vitamins, Minerals & Nutritional Supplements M&A

  • Growing Market: M&A activity in the vitamins, minerals, and nutritional supplements sector increased in 2024.
  • Consumer Trends: 75% of American adults now regularly use dietary supplements, according to a recent survey.
  • Private Equity Activity: Notable private equity-backed add-on acquisitions of contract manufacturers, including:
    • Somafina (Heartwood Partners) acquiring UST.
    • Impetus Wellness Group (AEA Investors) acquiring Reliance Vitamin Company.

Factors Driving a Strong M&A Market in 2025

Hexagon Capital Alliance identifies several factors contributing to a favorable M&A environment for 2025:

  • Post-Election Certainty: Greater political and economic clarity.
  • Easing Regulatory Scrutiny: Potential for looser regulatory oversight in the financial sector.
  • Private Equity Capital: Record levels of available private equity dry powder.
  • Strong Balance Sheets: Strategic buyers are in a strong position to make acquisitions.
  • Improving Interest Rates: A more favorable interest rate environment.

Positioning for Success in 2025 M&A

  • Preparation is Key: Companies that prepare early for M&A in 2025 will be best positioned to attract buyers and secure favorable valuations.
  • Strategic Advantage: Early market entry will help businesses stand out in an increasingly competitive market.

How Hexagon Can Help

Hexagon Capital Alliance specializes in M&A advisory for the personal care sector. We help businesses:

  • Prepare for Sale: Position your company to attract the right buyers.
  • Raise Capital: Assist in securing the necessary capital for growth.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [email protected]

Banker Insights: 2025 Healthcare M&A Activity Outlook

2025 healthcare services
M&A activity outlook

M&A Activity outlook

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What to Expect and How to Prepare

With 2024 now in the rearview mirror, we thought we would reach out to our Healthcare clients and prospects with some thoughts on what to expect in 2025.  To get right to the point, the next 12 months are expected to be very active for Healthcare M&A and Hexagon predicts 2025 will be a strong seller’s market:

Private Equity Demand

Many Private Equity Buyers have been sitting on the sidelines for the last couple of years due to a higher interest rate environment and valuation sticker shock within the healthcare space from 2020-2023. Most of these groups are starting to feel pressure from their investors to deploy the record amount of capital that they have raised but have not yet invested.

Falling Inflation/Interest Rate Cuts

While the country is still in a relatively high inflationary environment, inflation rates have been tapering off compared to recent years and there is an expectation that the Federal Reserve will likely effect modest rate cuts in 2025.  Lower interest rates enable buyers to use cheaper debt in their acquisitions and therefore cause buying activity to increase.

Competition for Deals

With so many Private Equity buyers jumping back into the M&A market, the competition for good quality healthcare deals will be fierce and therefore likely to push valuations up.

Healthcare business owners who have been contemplating a sale or capital raise in 2025 or even early 2026 should start preparing now.  While competition for deals is expected to be high, buyers are placing greater emphasis on due diligence.  Areas such as regulatory compliance, staff retention rates, as well as billing and coding practices are being scrutinized much more thoroughly.  Sellers that are well-prepared for this buyer due diligence, can generally expect to close their deals faster and can in many cases command a premium valuation.

Hexagon’s Healthcare M&A team has helped hundreds of healthcare business owners navigate successful transactions.  Give us a call if you would like to have a confidential discussion pertaining to your company.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Market Monitor: Building Products & Materials

Market Monitor: Building Products & materials

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Highlights:

North American Glass Market: Anticipated Growth Amid Economic Changes

The North American glass market is positioned for remarkable growth in the coming years, particularly following the Federal Reserve’s first interest rate cut since the COVID-19 pandemic. This strategic move, which includes an aggressive 50 basis points reduction, signals a shift in focus towards job growth while recalibrating inflation and unemployment objectives.

Projected Market Growth

Currently valued at over $30 billion, the glass manufacturing market in North America is projected to expand to more than $45 billion by 2030. This growth reflects an increasing demand across various sectors, including residential and commercial applications.

Mergers and Acquisitions in the Glass Industry

Well-capitalized strategic buyers are actively leveraging mergers and acquisitions (M&A) to enhance their offerings, capabilities, and market reach. This trend is expected to accelerate as the market begins to recover, particularly benefiting window and door manufacturers in both residential and commercial sectors.

Economic Easing and Its Impact

The anticipated economic easing cycle is likely to stimulate significant M&A activity within the glass market. As businesses adapt to the changing economic landscape, a rebound in M&A activity is already underway in 2024, setting the stage for robust growth in the industry.

For more information or questions, please contact our contributor:

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

 

Banker Insights: 2026 Estate and Gift Tax Exemption Change

2026 Estate and Gift Tax Exemption Change:

As we look ahead to 2026, middle market business owners face significant changes with the estate and gift tax exemption, which is scheduled to reduce from $13.61 million per person ($27.22 million for a married couple) today to roughly half of these amounts beginning January 1st, 2026. This impending shift presents both challenges and opportunities in the M&A landscape.

Accelerated Transactions: Seizing the Window of Opportunity

The reduction in the estate and gift tax exemption is expected to create a sense of urgency among business owners. Many will look to expedite M&A transactions to benefit from the higher exemption before it decreases. This urgency can lead to a surge in market activity, with owners keen to finalize deals while the tax environment is more favorable. By acting promptly, you allow time for preparing your business for a sale transaction in 2025.

Market Dynamics: Timing Your Moves

The impending change is likely to create a spike in M&A activity leading up to 2026, followed by a potential slowdown as the market re-adjusts. Strategic planning and preparation will be essential to capitalize on the wave. The U.S. experienced a similar phenomenon in 2012 leading up to the implementation of the American Taxpayer Relief Act (increasing the Federal Capital Gains Rate), where middle market deal volume increased by approximately 34% over 2011 as business owners aimed to complete transactions before the new tax provisions came into effect.

Increased Advisory Demand: Leveraging Expert Guidance

With impactful changes on the horizon, there will be a heightened need for expert advisory services. Even if you are not contemplating an immediate sale of your company, it is beneficial to begin preliminary discussions with an estate tax advisor and an investment banking advisor for several reasons:

  • Hexagon Capital Alliance (“HCA”) can provide relevant and valuable insights into market trends, helping you make informed decisions.
  • We can assist with your company’s strategic planning, helping you to position the company when it is time to go-to-market.
  • The process of selling a business involves numerous complexities, including due diligence, negotiations, and regulatory compliance. Having the luxury of time to understand the nuances of your business will help ensure that the process goes as smoothly as possible as opposed to waiting until the “last minute” to contact an investment banking advisor.
  • Our goal is to maximize value for our clients. By working with you early, we can take an offensive approach once the decision is made to sell your business. By working with HCA well before contacting buyers, we can make the process as efficient as possible, reducing execution risk and accelerating the time to close. With the anticipated tax changes, maximizing valuation becomes even more critical as owners aim to secure the best possible deal before the new estate tax rate and gift tax exemption is in effect.

Starting the M&A process early with the assistance of an investment banking advisor provides business owners with strategic advantages, including optimal timing, maximized valuations, favorable structure, and efficient transaction management. These benefits are crucial for navigating the upcoming 2026 tax changes and ensuring that business owners achieve their financial and legacy goals. Engaging with an investment banking advisor now is a proactive step towards securing a successful exit strategy.

Market Monitor: Flavors & Fragrances

Market Monitor: FLAvors & fragrances

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Making the right decisions for your business starts with having the most accurate and current information available. Our Flavors & Fragrances Market Monitor keeps you up to date on the events, trends, and market forces that shape and guide the industry.

The Allure of Flavors & Fragrances

Flavors & Fragrances companies are captivating strategic acquirers and private equity investors due to their loyal customer bases, enticing gross margins, and abundant growth prospects.

The Power of Flavors & Fragrances

Despite their minimal share in product costs, Flavors & Fragrances significantly influence consumer choices, resulting in high switching costs and formidable barriers to entry.

Key Attributes Driving Premium Valuations

Hexagon Capital Alliance has identified pivotal characteristics that attract interest and elevate valuations:

  1. Robust R&D Function: Technical expertise and a proficient team of certified flavorists drive innovation and product differentiation.

  2. Thriving End-Markets and Formats: Focus on high-growth segments like sports nutrition and better-for-you snacks, with expertise in sought-after formats such as functional gummies and RTD beverages.

  3. Appealing Gross Margins: Premium, tailored flavors command strong margins, bolstered by the inertia of high switching costs.

  4. Experience with Emerging Brands: Adaptability and agility to meet the evolving needs and swift market entry demands of emerging brands.

  5. Embracing Natural & Organic Trends: Predominantly featuring a portfolio of natural and/or organic flavors to align with the flourishing clean label movement.

  6. Robust Backlog: Proactive sales pipeline coupled with a surge in sample requests, underpinned by a stellar conversion track record.

  7. Manufacturing Capabilities: Versatile liquid and powder manufacturing capabilities, including spray drying, with ample capacity to facilitate expansion.

Embracing these attributes not only attracts interest but also enables Flavors & Fragrances companies to command premium valuations in the market.

For more information or questions, please contact our contributors:

Rich Anderson, Managing Director: randerson@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [email protected]

 

Banker Insights: BHASe and TCIV East

BHAse and TCIV EaSt key takeaways

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We recently attended the Behavioral Health Summit (BHASe) and Treatment Center Investment & Valuation Retreat East (TCIV East) which took place in Miami and Palm Beach Gardens, Florida, respectively.  Both conferences were well-attended and provided Behavioral Health business owners with excellent forums for discussing the current trends and important topics facing the Autism, Mental Health, and Substance Abuse treatment sectors.  Below are some of the Key Takeaways that we observed:

M&A Activity: A New Market Reality

  • Overall M&A activity in the Behavioral Health sector was down about 35% in 2023 versus 2021 and 2022 (which were amazingly good years).  The reasons for this drop are numerous and sub-sector specific but can be boiled down to a few issues faced by Private Equity (“PE”) Groups, who by and large drive most M&A activity in Behavioral Health.  These include a higher interest rate environment and tighter bank lending standards, causing deals to take longer to close, as well as few high-profile company failures causing PE firms to enter deals more cautiously.  
  • While one investment banker (who shall remain nameless) painted a fairly bleak picture for Behavioral Health M&A (yes, we know, the data does not lie), Hexagon’s Healthcare team views the environment a bit differently, where demand for high quality, fast-growing, and mission-driven organizations are still highly sought after by PE buyers.  
  • This is evidenced by two of Hexagon’s recent client transactions in the space, Family First Adolescent Services (Mental Health/SUD – which closed in 2023) and Autism Spectrum Interventions (ABA – which went under LOI in 2023 and closed after the holidays in January 2024).  Both sold to PE buyers in highly competitive processes.

Value-Based Care: The Future on Hold?

  • Value-based care dominated conference discussions, with both providers and payors acknowledging its potential future role in reimbursement models. However, no confirmed implementations of value-based care arrangements were identified. This suggests the concept remains largely theoretical within the industry.
  • A thought-provoking suggestion emerged from a Behavioral Health company CEO. He proposed a shift in focus towards outcome-based care instead of value-based care. This perspective is presented as a potentially more impactful approach.

Alternative Treatments on the Rise

  •  We were intrigued to see a fair amount of discussion concerning alternative treatment modalities and their role in helping (particularly mental health) patients/clients in their treatment regimens.  One panel at TCIV East was devoted to the increasing use of psychedelics in treatment, and another panel featured two provider panelists offering dedicated Ketamine and TMS clinics, respectively.  
  • Hexagon has witnessed a number of its own Mental Health treatment company clients making use of Ketamine and TMS as a treatment option and as an ancillary revenue stream for the practices.  While these treatment modalities have been utilized for years, Hexagon predicts that a significant increase in their use by practitioners as regulatory and reimbursement factors are ironed out.

For more information or questions, please contact the Healthcare Team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

 

Banker Insights: Skilled Nursing Facilities

Skilled Nursing Facilities

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Rebound and Growth Potential in the Skilled Nursing Facilities Market

Historically Challenging Environment for SNFs

Skilled Nursing Facilities (“SNFs”) have historically faced a demanding operating environment. The COVID-19 pandemic further exacerbated these challenges, leading to facility closures due to patients seeking alternative care and staffing shortages caused by the “Great Resignation.”

Signs of Recovery and Improved Efficiency

Despite ongoing operational challenges like rising interest rates, inflation, and labor shortages, some SNFs have emerged stronger. These facilities adapted to these challenges by streamlining operations, leading to improved efficiency benefits as occupancy rates rise and cost structures remain controlled.

Public Company Performance as a Leading Indicator

A review of Ensign Group (NASDAQ: ENSG), a publicly traded proxy for the SNF sector, reveals a robust year-over-year (YOY) stock performance of 18.7%. This positive performance is bolstered by rising occupancy rates (77.8% to 79.9%) and a significant increase in EBITDAR (Earnings Before Interest, Taxes, Depreciation, and Amortization Rents) of 15.0% (from $536.6M to $616.9M).

PACS Group IPO Highlights Investor Confidence

The recent Initial Public Offering (IPO) of PACS Group is another noteworthy development. The IPO priced at $21.00 (mid-point of the filing range) and experienced a post-closing rise of 16.9%. Additionally, PACS’s valuation metrics appear comparable to Ensign Group, suggesting investor confidence in the SNF market’s potential.

M&A Activity and Attractive Valuations

SNF M&A activity has remained steady over the past three years. This stability points to a highly fragmented market with significant consolidation opportunities, particularly among “mom and pop” operators. Furthermore, valuations appear attractive compared to other provider-based services, potentially offering value alternatives for investors seeking growth opportunities.

Long-Term Growth Potential

While the industry faces ongoing operational challenges like new staffing minimums, long-term macro trends remain positive. These trends include an aging population, increasing Medicare spending, limited access to alternative care options, and a decline in pandemic-related safety concerns. These factors combine to create exceptional opportunities for SNF operators and investors with a deep understanding of the market dynamics.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: 2024 Natural Products Expo West Takeaways

Natural Products Expo West: Fueling optimism in 2024

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The Hexagon Capital Alliance team is still buzzing from an action-packed week at the Natural Products Expo West 2024 trade show. In addition to showcasing innovative and trending products, Expo West acts as a vibrant meeting ground where established players, emerging brands, investors and service providers converge to discuss and shape the future of the natural and organic food and beverage (“F&B”) industry.


Beyond the high-traffic, high-energy trade show floor, the off-site networking scene was equally lively, with many companies hosting well-attended networking and post-show events. This bustling environment fostered strong connections which will undoubtedly fuel future collaborations.

Excitement Abounds in the Food & Beverage Ecosystem

Conversations with relevant industry players confirmed our own projection for a more robust M&A and capital raising environment in 2024 and beyond.

  • Increasing Transaction Activity: We connected with many of our strategic acquirer and private equity investor relationships at the show, all of which anticipate transaction activity to ramp up during the second half of 2024. Our conversations with M&A lawyers, accountants and other service providers yielded a similar sentiment. Finally, business owners that held off going to market last year are beginning to ask, “Is now the right time?” This sentiment is partially fueled by an expectation that the Federal Reserve will begin cutting interest rates later in the year.
  • The Rise of Outsourcing: The growing trend toward outsourced manufacturing, which allows emerging brands to remain asset-light and focus on sales and marketing, has led to strong interest in F&B contract manufacturing and packaging companies. Those with technologically advanced capabilities and formulation know-how have become prime acquisition targets.
  • Packaging is a Leading Indicator: Suppliers of packaging materials were encouraged by the volume of inquiries at the booths, and optimistic about requests for new artwork and designs leading up to the trade show. Contract manufacturers of F&B products continue to strengthen their positions in the supply chain, often recommending preferred packaging suppliers whose materials run best on their equipment.

A Taste of Tomorrow: Top Trends from Expo West 2024

Expo West remains the top destination for those eager to discover the future of consumer products. Whether it was observing the introduction of new, novel ingredients or meeting brands that cater to hyper-specific consumer needs, we saw (and ate!) it all.  Below are a few prevalent trends that piqued our interest:

  • The Rise of Gut-Friendly Products: Gut health continues to be a top priority for consumers, and Expo West showcased a smorgasbord of gut-friendly options. Probiotic sodas, kombucha on tap, and fermented food offerings were everywhere. This focus on digestive health highlights the industry’s commitment to providing functional solutions that go beyond basic nutrition.
  • Mushroom Mania: Mushrooms emerged as a superstar ingredient, gracing everything from savory meat alternatives to adaptogenic coffee blends. Whether enjoyed as a standalone supplement or creatively incorporated into foods and beverages, their versatility and potential health benefits are undeniable.
  • Protein Powerhouse: Protein-packed products were a dominant force at the show. From convenient ready-to-drink beverages to grab-and-go meat sticks and protein-rich snacks, manufacturers are catering to the ever-growing demand for convenient, high-protein options that fuel busy lifestyles.
  • Snack Attack: Expo West reaffirmed the snacking phenomenon, with a global twist. Manufacturers are incorporating exciting global flavors and functional ingredients into their snacks, appealing to adventurous palates. Additionally, nostalgic favorites are getting a healthy makeover, offering a delightful blend of comfort and innovation.
  • Packaging Prowess: A tale as old as time, consumers consistently demonstrate a propensity to purchase when the product packaging elicits a visual and emotional connection. Expect all major substrates of packaging materials (paper, plastic, glass, metal, green/sustainable) to continue innovating alongside every branded and private label product category.

For more information or questions, please contact our team:

Andrew Suen, Managing Director: asuen@hexagoncapitalalliance.com

Johnny Sherwood, Director: jsherwood@hexagoncapitalalliance.com

Brennan Anderson, Vice President: [email protected]

 

Healthcare: Monthly Insights – March

Healthcare M&A Insights

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Legislative and M&A Regulatory Updates


Strategies for Healthcare M&A Success in a More Regulated Environment: Commentary

The healthcare industry is witnessing a significant shift in its mergers and acquisitions (M&A) landscape. Regulatory changes and heightened scrutiny are impacting how healthcare organizations approach consolidation. Here’s a breakdown of key trends shaping healthcare M&A in 2024:

Focus on Drug Pricing

Bipartisan efforts target Pharmacy Benefit Managers (PBMs) to address rising prescription drug costs. Expect stricter transparency requirements and limitations on spread pricing practices.

Antitrust Investigations

The Department of Justice (DOJ) is investigating United Health Group and Optum’s recent acquisitions, raising concerns about potential competition issues. This could impact future deals, including United’s planned merger with Amedisys.

State-Level Scrutiny Intensifies

States like California (SB 184) are implementing stricter regulations requiring prior notification for healthcare M&A, mirroring existing federal requirements under the Hart-Scott-Rodino (HSR) Act.

Navigating the New Regulatory Landscape

These changes present challenges but also opportunities for strategic healthcare M&A. Here are some key considerations:

Early Legal and Regulatory Guidance

Early consultation with legal and regulatory advisors is important for navigating the complexities of the new M&A environment.

Transparency as a Cornerstone

Clearly demonstrate the value proposition of your M&A for patients and the overall healthcare market to address potential concerns.

Exploring Alternative Strategies

Consider partnerships or joint ventures that may face less regulatory scrutiny to achieve your strategic goals.

The Road Ahead: Potential for Future Shifts

The upcoming 2024 elections could bring changes to the federal regulatory environment. Staying informed and adapting your M&A strategy based on those potential shifts will be imperative for success.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]

Banker Insights: Physician Services

PHYSICIAN services

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Market Dynamics Lead to Increased Hospital-based Physician M&A

Colorado Attorney General Strikes Agreement Impacting Anesthesia Partners

In a significant development within the physician practice groups industry, Colorado’s attorney general has announced an impactful agreement with Anesthesia Partners of Colorado, Inc. (USAP), affecting contracts with five hospitals in the state, including the Denver and Durango markets.

Implications for Middle Market Practices

While initial concerns may arise regarding financial partnerships, this agreement presents unexpected opportunities for middle market and lower middle market practices. However, we think this development may influence growth or exit strategies within the industry.

New Opportunities in Contract Management

Hospital systems are shifting towards smaller independent physician groups for contract management in areas like anesthesia, emergency, and radiology departments. The new contract growth should result in a fundamental increase in the valuation of the independent groups. 

Attracting Strategic Players and Investors

The potential for new contracts is likely to attract interest from strategic players and private equity investors in the healthcare M&A landscape

Navigating Antitrust Scrutiny

Antitrust scrutiny may impact smaller lower middle market targets, but they may now be seen as potential platform investments.

Maximizing Potential Upside

Owners of platform targets could see significant potential upside as first roll-over equity in the capital structure of “newco”.

For more information or questions, please contact the Healthcare Services team:

Paul Kacik, Managing Director: pkacik@hexagoncapitalalliance.com

Brad Erhart, Director: berhart@hexagoncapitalalliance.com

Daren Oddenino, Director: [email protected]