Retail Will Be a Bright Spot for M&A This Year

The retail industry is poised for another year of busy deal flow. In just the past few weeks, we’ve seen announcements in the retail and consumer products industry from Heinz, Office Depot and Office Max, and retail finance chiefs expect the high level of activity to continue. In fact, according to our recent survey of 100 retail CFOs, nearly all (94 percent) expect M&A activity will increase or remain steady in 2013.

CFOs’ bullish forecasts follow $324.6 billion in global retail and consumer M&A activity in 2012, which was up 33 percent over 2011 and the busiest year since 2007, according to Dealogic. Looking at where the most deals will take place, a majority of CFOs (68 percent) expect the U.S. markets to see the majority of deal volume, followed by the Asia-Pacific market (20 percent) and Latin American market (7 percent).

Steadier markets, renewed interest in international growth and the desire for omni-channel capabilities are fueling the investment rebound in retail and consumer businesses. Deal flow was driven by both financial and strategic buyers in 2012, but CFOs are more bullish on strategic deals in 2013. With retailers looking to grow omni-channel capabilities and reach new markets overseas through acquisitions, 59 percent of CFOs say strategic buyers will be the primary driver of M&A activity.

Private equity investment has waned in recent years as retailers worked to navigate the ebb and flow of consumer spending, but many funds continue to find compelling investment opportunities in the sector and are looking to help companies with a strong value propositions grow in new channels and in new markets overseas. Private equity has fueled many recent restaurant deals in particular, and 41 percent of CFOs say financial buyers will be the biggest driver of deals this year.

On average, retailers report that they expect to see an EBITDA (earnings before interest, taxes, depreciation and amortization) multiple of 5.2 for an acquisition in the retail and consumer product space.

For more on retailers’ views of the M&A environment and access to capital, read our release here.

What are your expectations for deal flow in the industry this year?