The number of merger and acquisition (M&A) deals in the UK retail sector has fallen by 24% in the last year, as firms delayed possible moves due to the economic uncertainty created by Brexit.
According to law firm RPC, the number of retail M&A deals fell to 27 in the 12 months to 31 March 2019, down from 37 the year before.
The value of such deals was £222m in 2018/19, down from £3.7bn the previous year, with the total value this year impacted by the blocking of the Asda/Sainsbury’s merger.
RPC suggested that the slowdown in retail M&A activity is partly due to Brexit, which has caused some retailers to wait to get a clearer picture of the post-Brexit economic landscape before buying.
The continued shift towards online spending has also reduced the number of M&A deals undertaken by retailers primarily to expand their high street presence by acquiring a competitor’s portfolio of stores.
Whilst the number of bids launched by retailers has fallen, RPC highlighted that the number of retailers acquired by private equity firms has remained at a similar level compared to last year – six this year versus seven in the year before.
Further analysis shows that almost half (13 out of 27) of retail M&A deals were those targeting distressed companies. This shows that prospective buyers still see value in some troubled retailers.
Peter Sugden, Corporate Partner at RPC, commented: “There is still healthy interest in the retail sector, despite the fall in the overall number of M&A deals.
“In particular, it is clear that bidders still see value in distressed retailers, particularly where bidders have enough clout in the market to unpick problematic supply, distribution and real estate issues quickly after completing an acquisition. The most attractive distressed assets continue to be those which serve a strong consumer purpose and have a mature e-commerce offering but have been struggling under the weight of debt or poor operational management. Dealing with issues such as these is often seen as low-hanging fruit for bidders to drive value.
“More generally, it is pleasing to see that there is a sustained interest in the sector from private equity funds, which represents a vote of confidence in the retail market. However, on a macro-economic level, retailers can do very little about Brexit’s impact on the UK economy as a whole. It’s likely that deals that may have gone through a few years ago are now being put on hold due to the perceived risk Brexit has created. Usually after a period of uncertainty, deal volumes bounce back.”
