Despite the rush for retail consolidation sparked by Tesco’s move for wholesale titan Booker, 2017 has been a relatively slow year for mergers and acquisitions.
In the biggest completed deal of the year so far, Holland & Barrett was sold to Russian billionaire Mikhail Fridman’s L1 Retail for £1.8bn.
But there have been plenty of deals that never got away.
Kaupthing Bank shelved its sale of Oasis, Coast and Warehouse after potential buyers failed to meet the asking price for the fashion stable.
And Shop Direct owners the Barclay brothers canned plans to offload the home-shopping specialist because of apparently declining investor appetite attributed to “uncertainty created in the post-election UK environment”.
Research from law firm RPC revealed this week only serves to underline the drop-off in activity this year.
Just 16 retail M&A deals were completed in the year to June 30 – down 56% from 36 the previous year.
The value of those collective deals also nosedived, from £3.5bn in 2015/16 to just £746m in 2016/17 − excluding Holland & Barrett, which completed after that date.
While an increasingly stormy combination of cost headwinds including the national living wage, the apprenticeship levy, business rates and unfavourable currency movements have sparked the desire for consolidation and buying partnerships, macroeconomic conditions have prompted dealmakers to shy away.
Private-equity firms are all too aware of the pressures being piled on the retail sector, and many are seemingly unwilling to invest capital in the transformation plans often required.
There is also no escaping the lingering Brexit uncertainty amid slow-moving talks with the EU, which only adds to investors’ reluctance to buy businesses.
Retailers though should take the positive from this, in the sense that it leaves them as masters of their own destiny.
“Tesco, the Co-op, B&M and JD are among those that are taking circumstances by the scruff of the neck and striking deals they believe will benefit their businesses in the longer term”
With Tesco’s £3.7bn Booker deal approved this week by the competition watchdog – and the Co-op’s move for Nisa now facing a similar probe after the latter’s members voted in favour of the £137.5m tie-up – a flurry of deals could well be in the pipeline.
Tesco, the Co-op, B&M and JD are among those that are taking circumstances by the scruff of the neck and striking deals they believe will benefit their businesses in the longer term.
Similarly, as the year has gone on, the stock market has been receptive to new retail IPOs.
Fashion etailer Quiz, which updates next week, has a market cap in excess of £200m and is using £10.6m of proceeds from its float to accelerate plans to expand its store estate and grow its ecommerce business.
Footasylum, the latest retailer to launch an IPO, enjoyed a share price rise of 18% to 191p on the day it floated earlier this month and has similar ambitions to ramp up its bricks-and-mortar push.
While there may be a slowdown in mergers and acquisitions, the door is far from closed on business-builders’ ability to win new investment, whether to realise their efforts by selling stakes or to raise expansion finance, through the public markets.