The Consumer Goods industry is generally comprised of designers, manufacturers and marketers of products sold to consumers either directly or through retail establishments. One of the biggest success factors for any consumer products company is its brand. Think of Sony, Disney, Coke, Marlboro, Gillette, Kraft, Dell. Creating, enhancing and defending the “brand” are critical to the success of any consumer company.

Consumers are also becoming smarter about the purchases they make. By leveraging the Internet, consumers now shop based not only on brand and price but also on features. As a result, consumer companies need to constantly innovate and be on the leading edge of technology, while also delivering quality products at a fair price. Marked by rising energy costs, increases in overseas sourcing, and the continued need for innovation, the consumer industry is in a constant state of flux.

Global brands are becoming bigger, while younger brands seem to grow faster. The consumer industry landscape has been marked with a number of important M&A transactions, including: Proctor and Gamble buying Gillette, Adidas buying Reebok, VF buying Nautica, Vans, and Reef, and Rayovac buying Remington Products. The industry is characterized by larger companies buying smaller brands to leverage their purchasing power with suppliers to get better pricing, their marketing power with retailers to gain additional shelf space, and spending more with their promotional budgets to increase sales. When it comes to leveraging brand power, size does matter.

Investors and strategic partners in the consumer industry are constantly looking for the next great company. Successful consumer companies should be able to demonstrate a strong brand affinity, an ability to source components efficiently and effectively (especially overseas), and deliver quality products on time. Generally speaking, growing consumer companies should target a gross margin of more than 35% and an EBITDA (or net operating profit) of more than 20%. While valuation ranges vary depending on a number of factors, smaller consumer businesses are generally valued at between 5 and 7 times EBITDA.