Whats Left for Retail M&A in 2014?

The first half of 2014 may have been slow from a sales perspective, but retail and consumer products executives are not pulling the brakes on deal flow.

In fact, Dealogic reported in July that the value of announced deals in the global consumer products industry had reached $69.7 billion during the first half of 2014, almost four times the $18.8 billion seen in the same period last year and the highest since 2008. Dealogic data also indicates that retail is having the best year since 2005, with $31 billion in deals so far in 2014. 

As the nation’s largest dollar store brands move to consolidate, there are a lot of eyes on the retail industry, both from strategic and financial buyers. While we’re far from the mega-consolidation and deals the industry experienced 10 to 15 years ago, we see plenty of opportunity in the remainder of 2014 and early 2015.
Strategic buyers have been very active in the food and beverage sector in 2014, but strategic deals have also been on the rise across the retail and consumer industry as companies see fewer and fewer avenues for organic growth. Many retailers have reached a ceiling when it comes to adding new stores, and they’ve also reached a wall in using cost-cutting efforts to improve margins. As such, more companies are pursuing strategic mergers as a means to achieve new growth. At the same time, growing e-commerce sales and consumer demand for a consistent brand experience across channels is contributing to acquisitions. Some brands are finding it difficult to build out the infrastructure and capabilities necessary to succeed in the digital realm, and are instead looking externally to acquire resources.

We also see plenty of room for private equity investors in this space. Among public retailers, constrained spending has contributed to disappointing results and stock prices, putting several major brands under pressure. Private equity firms see a lot of opportunity here, particularly for brands with good fundamentals and leases. Looking beyond traditional retail, Bain Capital announced in August that it would buy a 50 percent stake in Toms, a popular and philanthropic shoe brand. Several PE firms are also exploring deals with P&G as the company looks to refine its focus and shed 100 brands from its portfolio.

Looking ahead, we expect to see continued retail and consumer deal interest in the third and fourth quarters. While some activity may quiet down as retail executives focus on the all-important holiday season, Q1 may bring another bump in activity as strategic and financial buyers alike assess holiday results and zero in on attractive targets.

For more on the current state of retail and consumer products deal activity, stay tuned for our Consumer Business Compass Newsletter later this month.