DATA: Retail acquisitions decline as investors tighten their purse strings

The number of retail mergers and acquisitions has fallen dramatically this year, according to new research.

In the last 12 months, there were 16 M&A deals in the retail sector, down 56% from 36 deals the year before, according to RPC, the city-headquartered law firm.

The value of retail M&A deals also fell from £3.5 billion in 2015/16 to just £746 million in 2016/17 as Brexit and other pressures on the retail sector led to investors, especially in private equity, shying away from deal-making.

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However, the law firm says, the pipeline of major deals in the sector suggests that the coming year is likely to show a significant rise in the value of M&A transactions, particularly in the supermarket industry.

RPC said that a potential wave of consolidation in the retail sector is being driven by a wide range of pressures on margins in the industry, including rising staffing costs, the fall in Sterling driving up import prices, and the continued shift to online shopping.

Retailers have already seen staffing costs rise due to the introduction of the £7.50 per hour National Living Wage – which the Government aims to increase to £9 by 2020 – and the Apprenticeship Levy. The potential for a reduced EU workforce post-Brexit is also expected to drive up costs.

RPC added that consolidation is seen by many in the sector as a “vital step” in increasing volumes and achieving greater economies of scale, especially within their supply chains.

Karen Hendy, partner and head of RPC’s Corporate Practice, said: “Pressures on the retail sector may have dampened M&A activity over the past year, but they are now driving a wave of consolidation.”

“The next year is likely to see several multi-billion pound deals as retailers react to margin compression by aiming for sharply increased volumes and greater economies of scale,” she added.

“For major supermarket groups, convenience stores are seen as an area for growth, but in many cases, the logistics infrastructure isn’t there to support them. Retail and wholesale groups with well-developed supply chains are a particularly attractive target.”



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