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The median PE buyout size in consumer products is heading for a decade high

Private equity’s track record in retail has come under some hefty scrutiny of late. And buyout shops are taking the hint. At just over 40 deals closed through 1H, PE firms are set to complete the fewest retail transactions since at least 2013.

Although the headlines are hard to ignore, it’s important to point out that financial sponsors have also helped brick-and-mortar operations in the middle market with the adoption and expansion of digital strategies. This development has been a boon to retailers. Increased investment in digital technologies has made operations more efficient, boosting sales and blending the customer experience online and off.

As a result, some PE firms are finding bright spots in the still-competitive US consumer market, with many omni-channel businesses not only maintaining margins in the face of secular stagnation, but also commanding higher valuations. This dynamic has contributed to the persistent strength of median deal values even as activity cools off.


Digital strategies can provide retailers with valuable metrics on essential data points like customer acquisition costs, which help improve performance. Moreover, marketing campaigns waged across channels have given middle-market retailers an outsized opportunity to track consumers from engagement through purchase in a manner reminiscent of larger rivals. An essential element here has been the swift adoption of direct-to-consumer distribution models by those with a conventional retail presence. Case in point? Cosmetics. And demographics are on their side.


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Supermarket sales see first overall decline since 2016

Supermarket sales have fallen for the first time in three years as shoppers’ appetite for beer, cider and ice cream fell in comparison with a period last year buoyed by hot weather and the men’s football World Cup.

Shares in Tesco, Sainsbury’s and Morrisons fell after industry data from Kantar showed the market shrank by 0.5% in the 12 weeks to 14 July – the first decline since June 2016.

The report said households had been taking one fewer grocery shopping trip during the period while stores are also being squeezed by a slowdown in price growth.

However, it anticipated that the market would return to growth once the comparatives with last year’s summer period pass.


Fraser McKevitt, head of retail and consumer insight at Kantar, said it was a “challenging 12 weeks” with sales declining or growth slowing at all the major grocers except Ocado.


He added: “Last year people shopped more frequently and closer to home as they topped up the cupboards while enjoying the sunshine and the men’s football World Cup.


“This year households are making one fewer trip, which may not sound like much but is enough to tip the market into decline.


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Retail Mergers and Acquisitions Rise by 15% as Businesses Try to Combat Falling Sales

The number of retail sector mergers and acquisitions has grown by 15 per cent in the last year as companies try to make up for struggling sales, a new study reveals.

Figures compiled by law firm RPC show there have been 37 retail mergers and acquisitions (M&A) deals in the year to 31 March, compared with 32 in 2016-17.

RPC said the recently announced Asda and Sainsbury’s merger was a good example of the recent trend for businesses in the food side of the retail sector to “add economies of scale to make up for slowing organic sales growth”.

Firms are also favouring M&A over flotations, due to weak demand from investors. Selling up to a competitor is seen as a more secure way for existing investors to exit a smaller retailer than an IPO which could be cancelled at any point “due to short-term volatility or poor sentiment towards the sector”.

“Through mergers such as Asda and Sainsbury’s, market leaders are looking beyond all the hype about the ‘meltdown of the high street’ and getting on with building breadth of offering and scale,” said RPC corporate partner Karen Hendy.

However, while the number of deals has jumped, the overall value of those transactions has fallen 16 per cent to £3.7bn, from £4.3bn the year before. Ms Hendy said: “It is important that sellers and creditors are sensible over the prices they are expecting from M&A deals in the current climate.”

Meanwhile, RPC said there is still interest in buying distressed retailers’ assets but buyers are looking for substantial discounts, and the number of retailers entering insolvency has risen by 7 per cent in the last year.

UK M&A deals announced in 2017-18 include:

  • The Co-op’s approach for Nisa, valued at £143m

  • Tesco Opticians’ acquisition by Vision Express owner Grandvision

  • Multiyork Furniture’s acquisition by DFS

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