2020 could prove to be a competitive year for retail mergers and acquisitions, according to Pitcher Partners' new report.
The annual Dealmakers report produced by Pitcher Partners and Mergermarket, reviews merger and acquisition (M&A) activity and canvasses dealmaker expectations for activity in the Australian mid-market in 2020 and beyond.
In the wake of the collapse of many Australian fashion retailers including Colette by Colette Hayman, Bardot, Jeanswest and Harris Scarfe, the report suggests that the tough conditions of Australian retail offer opportunities for M&A activity.
The report suggests that despite a downturn of more than 6% in deal volume and a 35% decline in deal value the $28 billion Australian retail sector will see more M&A activity this year.
In 2019 retail was the most traded consumer sub-sector with 72 deals worth more than $4 billion.
Fashion M&A in 2019 included Kathmandu's $350 million purchase of Rip Curl group, the undisclosed sale of a minority stake in women’s footwear makers Frankie4 Holdings and PVH’s purchase of Gazal Holdings, the Australian distributor of brands including Tommy Hilfiger and Calvin Klein.
Corporate finance partner at Pitcher Partners Melbourne Michael Sonego said that 2020 will see many retailers assess their situations.
"The opportunity for bargains among distressed assets is a key factor and while there are a lot of businesses that have struggled, there is always the potential to reinvent what is already there.
"Has the retail business been overcapitalised or does it have too much debt? Could you buy cheaper or better? Do you have a strategy to sell more or get consumers to increase their spend? That’s where the opportunity lies, particularly with distressed assets.
"There are a lot of factors hurting retail and the question is do you wait those out or package your business now when you know there is significant market interest?
"You will see retailers start to really look at their value proposition — their loyalty programs, their ability to connect with customers, the recognition of their brand, the level of customer advocacy. All those things contribute to the value of the business," he said.
Despite a subdued M&A market in Australia in 2019, the Dealmakers report suggests that Australian assests are set to be hot property in 2020.
Key findings of the Dealmakers report include:
• 92% of global dealmakers say they expect domestic mid-market M&A to increase
• 78% expect a rise in inbound foreign deals
• Only outbound M&A suffered a loss of confidence, with less than half (48%) expecting a rise in deals
• Outbound M&A in 2019 was the lowest in five years for volume but has been the highest in value for more than a decade
• 65% of dealmakers who have previously invested in Australia will consider further local acquisitions.
The Dealmakers report was released on February 13.