Retail CFOs Expect M&A Activity to Remain Strong

Market volatility and rumors of a double-dip recession tend to deter merger and acquisition activity, in some cases bringing deals to a screeching halt. Nonetheless, the retail sector is already experiencing a robust year of M&A deals, as explained by David Berliner and Don Levy in last week’s post. There are up to 28 possible retail deals in 2011 (including deals that have already closed)—several of which have garnered a great deal of attention.  VF Corp. completed its acquisition of boot maker Timberland in September for $2.2 billion, making the deal the biggest acquisition in the company’s 112-year history—an impressive landmark for the world’s largest apparel maker.

The 100 retail CFOs polled in BDO’s Retail Compass Survey of CFOs, now in its fifth year, expect the retail industry to remain an active space for M&A activity.  96% of CFOs expect M&A activity to increase or remain the same in the next year. Most CFOs (66%) expect this activity to take place primarily in the United States, followed by the Asia-Pacific region (18%) and Europe (16%). Interestingly, 75% of CFOs of retailers in the top 100 believe M&A activity will take place primarily in Europe.

Retail CFOs may agree on the relative frequency of M&A activity, but they are split over which buyers will be driving these deals: 52% say upcoming M&A activity will be driven by strategic buyers and 48% say this activity will be driven by financial buyers. Considering the high number of private equity deals we’ve seen so far this year, this near split seems to indicate that many retailers are gearing up to grow and diversify their product offerings through strategic buyouts in 2012.

CFOs also shared their thoughts on the EBITDA multiple they expect to see for an acquisition in the retail and consumer product space in the coming year. At 6.6, this prediction is down from the 2010 average of 6.8 and the 2009 average of 8.2 (according to PitchBook). With the EBITDA multiple predicted to decrease for a second straight year, the retail deal space may be more enticing than ever for prospective buyers.

It seems we can expect plenty of activity in the retail sector. What are your deal predictions for the year ahead?

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