Private equity needs to go shopping in 2012, and global M&A activity will continue despite market volatility.

Private equity needs to go shopping in 2012, and global M&A activity will continue despite market volatility. The corporate community is flush with cash and there are opportunities for savvy investors looking for quality investments. Investors are looking for retailers with strong brands, impressive financial performance and global prospects, and the dealmakers who have their fingers on the retail pulse will succeed.

The overall perception persists within North America and Europe that the larger opportunities have been combed over and it is difficult to find actionable investment opportunities of size. However, it’s not impossible to find interesting potential investments. Key focus areas are likely to be healthy living, personal care, sports and fitness, ecommerce, value and discount retail and luxury or affordable-luxury goods. Potential M&A activity in 2012 will happen through private equity and, to a lesser extent, strategic deals.

The IPO market is showing signs of life, and the global luxury subsector is particularly promising. Just look at the success of recent listings by Michael Kors in the US, Ferragamo in Milan and Prada and Coach in Hong Kong. Tumi has recently filed its IPO registration statement, an offering likely to attract significant interest. If you have a global brand that continues to post impressive numbers in emerging markets, such as China, you will be attractive to public investors. Increasingly though, investors looking to take control of companies must be prepared to consider smaller transactions. Meaningful minority investments in the form of growth capital are also a possibility. There’s also some momentum around transactions involving companies looking to augment their online or m-commerce capability through acquisitions of internet businesses.

Investors looking for a turnaround opportunity will likely not be disappointed in 2012. In the US, Talbots, Fashion Bug and Collective Brands, for example, have either publicly stated they are exploring M&A possibilities or have been approached by potential investors. The economic challenges in Europe will no doubt force some companies to take a hard look at their operations and business models. 

As 2012 unfolds, private equity investors will likely examine whether they should monetize investments made during the buyout boom from 2004 until 2007. Assuming the credit markets co-operate, or there is an option via an open IPO market, we could see some of these assets coming to market. Selling to their private equity brethren will also be an option.

Ideally, though, some such assets will be sold to firms that are strategic and looking to grow through an acquisition that is well aligned with their core business and long-term plans for growth, perhaps via cross border transactions.

Whether you are large or small, if you are a retailer with global brands and prospects for growth, there’s no shortage of cash, and it’s a safe bet that you can look forward to an active M&A environment in 2012.

  • Colin Welch President and chief executive, Financo