Checkout: Shopping for growth

Dealtracker for the retail industry

In this Dealtracker publication for the retail industry; "Checkout: Shopping for growth", we have reviewed global M&A activity in the sector between 1 January 2011 and 30 June 2014. This has been a particularly tough period for many traditional retailers, who have struggled on the back of low consumer confidence and high levels of competition. Buyers have therefore been looking for businesses that can offer them a competitive difference by providing greater choice, value and convenience to customers.

Key insights

Omni channel

With an increasing channel shift from bricks and mortar retail to online, traditional retailers are building omni channel strategies in an attempt to attract customers, whether they be in store or online. As a result, high multiples have been paid for some online businesses, particularly those of a reasonable size in a specialist niche. We expect M&A activity to remain strong in the online retail space over the next few years as we continue to see consolidation in this space.

Niche segments

Buyers have also been looking for businesses in niche segments of the market where strong growth is expected. Areas that have attracted buyer interest include: 

• Health and nutrition, as there is a growing trend by consumers towards healthier food products, fitness wear and lifestyle
• Restaurant chains, as consumers are increasingly looking for value options. The restaurants most sought after were profitable, multi-site businesses with strong brand names and further expansion potential; and
• Luxury goods, because acquirers expect this sector to rebound strongly as the economy continues to recover from the Global Financial Crisis (GFC)

Strategic buyers

In order to compete on more than just price, retailers have also been keen to acquire businesses that can help them create a unique merchandise offering. Of particular interest to buyers are businesses with clearly differentiated brands, strong online capability, broad product ranges and/or strategically located stores. Buyers have also been looking for opportunities to improve their profit margins through economies of scale by gaining cost savings through increased purchasing power, supply chain efficiencies, improved systems and better inventory management.

Private equity

There has been significant investment by Private Equity firms (PE) in all retail sectors over the last few years, as well as a number of successful PE exits. PE firms have been acquiring businesses with strong brands and leading positions in niche, fast growing markets. In many cases, the PE firms have helped to accelerate the growth of the retail business that they have acquired, by providing funding and supporting management through their contact network and retail expertise.

Globalisation

Many large retailers have also been acquiring businesses as part of a strategy to expand their companies globally. Australia has attracted international acquirers, as a result of our strong economic conditions, reliable regulatory environment and close proximity to Asia. We expect the level of retail competition in Australia to remain strong, as new global entrants come into our market either by buying Australian businesses, setting up their own stores or by targeting Australian consumers through their online offerings.