FLG Partners’ C-suite consulting and advisory practice supports a diverse continuum of industry sectors, from healthcare and life sciences to technology (SaaS and software to med tech and hardware) and consumer, from e-commerce to CPG. Our partners regularly attend many industry conferences and networking opportunities to stay abreast of the latest trends impacting our clients and our recommendations for each of them regarding risk management, improvements in performance management, investment spending, and fiscal accountability.
Here is a recap of trends by sector based on our latest partner roundtable discussions:
Life Sciences & Heathcare Sector Trends: J.P. Morgan Heathcare Conference 2023
Several FLG partners (including myself) just returned from the 2023 JPMorgan Healthcare Conference in San Francisco, a key mecca for leaders in this sector, including our CFO advisors, so that we can better assist our clients with funding, partnering, and M&A opportunities as we head into Q1-Q2 of 2023.
Our takeaways from this “go to” event for anyone involved in the innovative life sciences and healthcare sector are as follows:
- First, regarding raising capital as we continue into 2023, we believe that the IPO market will be generally closed until the end of year. Other equity financing arrangements will also be challenging. Some biotechs with strong clinical data, and med device/tech companies with growing revenue, should be able to achieve funding and partnering opportunities, albeit on stiff terms.
- Second, public microcap life sciences companies running out of cash this year may look feverishly at either reverse mergers as a way to continue to fund clinical programs, or de-valued M&A transactions with Big Pharma or larger companies. Some may even need to wind-down if they cannot attract additional funding.
- Third, PE firms – not traditional players in life sciences – may start to jump into this sector. Many were present at JPMorgan, sniffing around deals that may become attractive to them.
- Lastly, as we concluded the conference, it was clear that medtech and device companies have potentially better funding options than many life sciences companies looking out into 2023.
Technology Sector Trends: Gartner’s Forecasts
Unlike the state of the overall life sciences market in 2023, we believe the technology sector is relatively healthy due to its fundamentals.
Yes… we continue to note lay-offs occurring at many tech companies – with Amazon, Microsoft, Salesforce, and Google the latest to reveal RIFs but we believe this is appropriate and necessary to streamline cost structures that may have gotten out of balance over the last two years with rapid hiring during the pandemic and given current revenue forecasts. While certain sectors like crypto, in particular, are taking a beating, SaaS companies with strong metrics, as well as strong performers in software and hardware businesses, will continue to grow. Demand for tech is still strong, and CTOs are continuing to invest in both capital equipment and intellectual property. Gartner is forecasting that tech spending should rise approximately 5.1% this year, with cloud computing being the biggest source of investment. What has also been interesting to watch here is the strong interest by PE firms in investing and/or acquiring tech companies across tech subsectors.
Consumer | CPG | Retail Trends
We believe this will be a very challenging year for the consumer, CPG, and retail sectors, as consumers slow down their spending, or curtail it, due to inflation, and with continued uncertainties with the larger economic recessionary environment. Our FLG virtual event “Code Red in Retail” examines this outlook in detail with former Fed Governor, H. Robert Heller.
In particular, inventory overstocks from mismatched supply and demand in 2022 (especially in niche/fashion categories and at the product/sku level) will continue to require a more promotional approach on the part of these businesses in Q1-Q2. We saw this already with Black Friday moving into late October and Q4 discounting. Price increases, which some consumer companies used to offset inflation in 2022, may fortunately start to moderate as we head into slower economic times in 2023. So, we believe operating margins will continue shrink for most CPG and retail companies during Q1-Q2, with likely attendant consequences in terms of layoffs and cost containment activities. And with the challenges in this sector in 2023, we expect M&A activity in consumer/CPG/retail businesses to continue and possibly accelerate.
On a more positive note, we see omni-channel distribution by consumer businesses continuing to expand. And, with the use of AI and better analytic technologies, these companies will begin to understand their customers’ preferences and behaviors better so that they can better deliver the goods that their customers want, when and where they want them. Recessionary times can sometimes be a positive change agent incenting CPG and retail companies to “do better” by providing faster and more efficient product delivery and offering more convenient buying options such as “on demand” DTC/e-commerce storefronts.
We at FLG Partners are ready to help our clients navigate the tricky waters of 2023, as our partners provide exemplary CFO expertise in financial strategy and operations to help companies succeed in the kind of challenging environment we believe we will confront this year.