Retail is facing two futures. M&A activity shows that investors are planning for long term success, but post-Brexit custom duties and the cost of living squeeze are dominating the headlines. In our Q1 2022 sector review, we take you through the key trends and deals, and look at options for managing the current pressures: from using the Netherlands as a gateway to Europe, to asking if dynamic pricing can increase your profits.


Inflation may be disrupting consumer spending, but robust deal activity shows M&A buyers are focused on the long-term. Nicola Sartori explains the recent trends and key deals.

Record inflation has put household budgets under immense pressure and squeezed consumer spending. However, this did not dampen appetite for retail assets in Q1; there were 18 deals, the second-highest quarter since the start of the pandemic.

UK quarterly retail M&A volume/value chart


Q1’s £1.5 billion announced deal value was more than double that of Q1 2021, but was down on Q4’s 2021 £4.4 billion (although this included the £4 billion Selfridges sale).

The road to net zero: Q1’s biggest (reported) deal

March 2022 – Antin Infrastructure Partners sold UK motorway service operator Roadchef to Macquarie Asset Management for a reported £900 million. As the UK moves towards net zero, Macquarie intends to help Roadchef roll out electric vehicle recharging facilities and invest in retail partnerships.

ESG and health and wellness remain active areas

Environmental, social, and governance (ESG) factors and health and wellness remain hot sectors as post-pandemic consumers focus look to nurture the planet and themselves.  

ESG deals

Giving back

February 2022 – Inflexion Private Equity acquired Blue Light Card, an omnichannel marketplace that offers discounts to members in the UK emergency services, NHS, social care sector, and armed forces. This deal stands out as it specifically targets the ‘social’ aspect of ESG. 

Health and wellness deals

 A healthy deal

March 2022 – Norwegian consumer goods brand Orkla acquired the Guernsey-based Healthspan Group. The deal gives Orkla a route to the UK market through Healthspan’s established D2C retail channel.

The return of trade buyers?

While historically trade buyers have always seen good opportunities through retail M&A, conditions created by the pandemic precluded many trade from pursuing an acquisition strategy. Trade accounted for 59% of deals in Q1 2022, compared to 90% a (largely) pre-COVID-19 Q1 2020. The drop can be explained by two key reasons:

  • Retailers were focused on challenges, such as temporary closures, in-store health measures, and furloughing staff
  • Multi-channel retailers had first-hand optics on the coronavirus-bounce effect, making them more cautious about valuing companies based on trading during the pandemic.

As ‘post-coronavirus’ trading has stabilised, these concerns are less relevant. We've seen an increase in interest over the last two quarters and expect to see the proportion of trade deals increase in coming quarters as these complete.

The rise of trade deals

March 2022 – personal hygiene giant PZ Cussons acquired UK baby and child personal care brand Childs Farm. It's what Cussons terms a ‘must win brand’ – those that hold leading positions in its priority markets. The larger company will use its brand-building capabilities to increase Childs Farm’s market share as well as help it grow internationally.

Cross-border activity


Overseas acquirers accounted for 39% of deals in Q1 2022 (37% in Q4 2002). Headline deals included US-based Sycamore Partners offer for Ted Baker. This represents a growing interest from US buyers in UK chains that tick the following boxes, such as Wolverine World Wide’s 2021 acquisition of Sweaty Betty and General Atlantic’s 2020 investment in Gymshark:

  • it has established sales in the US
  • it has a clear growth story that features the US.

Capital markets: IPOs on hold

Global stock markets have been hit by several material macroeconomic factors, initially concerns about record inflation and interest rates and subsequently geopolitical tensions. As a consequence, institutional investors have paused their support for new IPOs with an expectation that activity will start to recover most likely after the summer.

Restructuring and Special Situations

In February 2022, Frasers Group acquired Studio Retail from administration. Studio sells a mix of cut-price own-brand products, giving shoppers the option to spread payments over many months.

This was Q1’s only restructuring deal. As we mentioned in a previous report, we expect to see more restructuring and special situations deal activity driven by the tailing off of COVID business support measures, the ending of restrictions on landlord recovery actions in March, and the dampening of consumer spending confidence from rising cost of living.

What’s next for 2022?

Retail-sector watchers will be keeping a close eye on allocation of household spending. Inflation will introduce a new set of choices for consumers: should I forgo eating out to save for a holiday; new clothes or spend on the house?

Buyers of retail businesses will either be looking for compelling propositions that consumers will consider worthy of their shrinking budget, or robust models that will thrive regardless of macroeconomic headwinds (or at least ride them). In the latter case, they may look for lower multiples to counterbalance a foreseeable choppy consumer environment.

For more insight and guidance on retail M&A in Q4 2021 get in touch with Nicola Sartori.

The UK retail sector faces major headwinds which are likely to dampen consumer spending, with the Bank of England’s Governor, Andrew Bailey, warning that people are due for a “historic shock” to their incomes.

Inflation starts to bite

UK households were already dealing with higher fuel bills and facing a hike in their energy bills from April 2022, following the energy regulator Ofgem’s increase in the energy price cap by approximately £700 or 54% in April.

Inflation at the end of March was 7.0% and is expected to rise to over 8% in Q2 2022. It may climb higher in the autumn if there is a further rise in the energy price cap.

The invasion of Ukraine by Russia is a terrible human tragedy, which will also have adverse implications for the global macroeconomic recovery from the pandemic crisis. As the UK is more reliant on gas and oil for energy than other European countries, higher gas and oil prices will impact the UK greater. With energy prices expected to rise again in autumn 2022, the Office for Budget Responsibility (OBR) forecasts that inflation will reach 8.7% in Q4 2022 – which would be the highest it has been for the last 40 years.

Passing on the costs

The rising cost of shopping was highlighted in the latest British Retail Consortium (BRC) Shop Price Index update, with food inflation at 3.3% in March. With commodity prices rising and supply chains likely to disrupted by the geopolitical tensions, it is likely that retailers will have to pass on further cost rises to consumers.     

Higher inflation will hit real incomes and consequently consumption, as noted by the OBR. With net taxes also rising following the freezing of Income Tax allowances and National Insurance tax rises, the OBR projected that real living standards would fall by 2.2% in 2022 to 2023.

Shopping around, spending less

The impact of these higher costs on UK consumers was highlighted in the Office for National Statistics (ONS)’ latest ‘Opinions and Lifestyle Survey’ (1 April 2022).The results showed that 83% of people reported an increase in their cost of living in March 2022, which is an increase of 19 percentage points compared to November 2021. Nearly a third of households felt they could not afford an unexpected, but necessary, expense of £850.

The consequences for both consumer spending and retailers are going to be challenging. Due to the rising cost of living, 51% of people reported that they would spend less on non-essentials, shop around more for their purchases (36%), and use less fuel at home (31%) and cut back on food and essentials (31%), as surveyed by the ONS.

Retailers will be revising trading expectations for the year ahead and assessing the implications for their finances. With the end of the restrictions on landlord actions for recovery of unpaid rent in March, 2022 will be another challenging year for UK retailers.q1-2022-retail-cost-of-living-facts.svg

Many UK companies are having to deal with extra administration, procedures, delayed delivery times and diminished access to the European market since leaving the EU in 2020. And these burdens increased this year as full customs controls came into effect for EU-UK trade on 1 January 2022. UK organisations are reviewing their options for EU trade as a result.

The Netherlands offers a number of practical solutions to minimise the compliance burden and optimise VAT cash flow. Meanwhile, the supportive Dutch corporate tax structure and operating environment makes the country a popular location for setting up European headquarters.

Reducing compliance and VAT administration

Goods moved from the UK to EU need to be imported into the EU. Importing and making subsequent sales will often result in a VAT registration requirement, but this can be avoided or simplified by using one of the following three options. 

1 Appoint an LFR

You do not need to register for VAT at all if you appoint a limited fiscal representative (LFR). The advantages of this are:

  • minimal compliance
  • no VAT on imports
  • the LFR takes care of everything for you

There are, however, a few caveats to this option: it cannot be used for B2C sales, and due to unlimited liability the LFR may ask for a high bank guarantee or bond and fees.

2 File your own returns

You register for VAT as a non-resident business without using a fiscal representative. You file VAT returns yourself – or appoint an agent to do this for you – and there's no need for bank guarantees or a bond. You will have to pay VAT upfront on imports and deduct import VAT on your regular return.

3 Use a GFR

You register for VAT by using a general fiscal representative (GFR). Again there's no VAT on imports and the GFR files VAT returns on your behalf. But they will ask for a (limited) bank guarantee/bond.

A supportive corporate tax structure

The Netherlands has one of the biggest treaty networks of the world, with more than 100 bilateral tax treaties in place to avoid double taxation. These treaties reduce or prevent withholding tax on dividends, interest and royalties.

Of great importance for European headquarters is the country's broad participation exemption, which results in a 100% exemption for qualifying dividends and capital gains.

Finally, corporate income tax rates in the Netherlands are now only 15% for the first EUR 395,000 of taxable profits and 25.8% for taxable profits exceeding EUR 395,000.

This combination of attractive corporate tax environment and options for minimising the compliance burden on import/export controls makes the Netherlands a strong strategic base for UK companies seeking faster, more efficient trade operations.

To discuss this topic further, get in touch with Monique Pisters.

What do you need to know about auditor transition?

As a result of increased audit activity in the market we have included some helpful tips on how to make auditor transition a smooth and efficient process.

Anyone who buys online knows how easy it is to compare the price of goods. Instant comparison has long been clear for products such as hotel rooms and airline tickets but this approach has now become increasingly ubiquitous across online retail of every type. 

Led by online giants with massive data on every consumer and their habits, retailers have developed models that seek to ensure that each and every pricing decision contributes to profit maximisation.

It’s a simple concept with some obvious benefits for retailers: sell the same product at different prices (that reflect the demand of a customer) to make the best contribution to overall profits. Sounds easy, right? But anyone considering using dynamic pricing needs to consider what makes for a successful setup and what pitfalls to avoid.

Three keys to a successful dynamic pricing set-up


1 Data feeds dynamic pricing

The first step in any dynamic pricing system is to model market demand, customer actions and reactions to your products. Considerable data is now available on customers and competitors, and when combined with powerful dynamic pricing models, you can achieve real-time results.

The second step is to remember that dynamic pricing, as with any pricing behaviour, is all about profit not revenue – a basic statement that many forget when inputting data. Profits may be easily destroyed from failure to allow for all costs, not considering the implications for stock management, making radical changes to basic repeat purchases and a range of other issues.

2 Walk don’t run

The quality and nature of the data used is everything. You need to ensure its quality, accuracy and suitability for what you are trying to do. So many pricing and optimisation models fail when retailers run before they can walk. Only once robust data collection, cleansing and cleaning has been achieved can dynamic pricing models be estimated and eventually implemented.

3 Bespoke or commercial

The development of focused, commercial models has mainly removed the need for bespoke price optimisation models. In many cases they are industry-focused and generally follow sound practices. But the danger here is reading a brochure and thinking any dynamic pricing model will work when in reality each has its own particular properties to consider – and sometimes bespoke models will be the wiser option. Getting independent expert advice from a source not connected to a system owner is a critical step.

With commercial models it is up to you to ensure they link with your other retail systems. This sounds simple enough, but anyone who’s ever been involved with adding dynamic systems to more static systems – whether that be finance, stock or other – will quickly realise that a failure to deal with compatibility issues can lead to much bigger issues than developing a bespoke system.

Dynamic pricing in action

Once your system is up and running, you might think your worries are now over. But here are two other issues for you to consider once dynamic pricing is switched on.

Firstly, you need to be clear on the implications of pricing on consumer behaviour. The nature of your product will affect how often people are willing to accept a change in its price. It’s harder for consumers to accept constant changes for repeat purchases than a bespoke price for a one-off or occasional purchase, for example.

Secondly, consider how omnichannel models – shorthand for the mix of physical and online sales channels – affects behaviour. People have to operate in a complex world where they take advantage of key insight but don’t fall back onto behaviours that remove the benefit of the data because they know better. This needs clear focus on the organisational behaviour requirements that allow dynamic pricing to happen. Put simply: it’s not just a back office operation.

Opportunities for all

While the greatest gains are for those with the most information, gains from dynamic pricing are available to most, if not all, retailers who are willing to be driven by data. As all retailers become omnichannel – in that even the smallest have online shops – all can gain (or at least keep up) from making smarter data-driven decisions. This opportunity is not just for the largest corporate conglomerate.

However, we also have to sound a note of caution. There are potential competition concerns over the use of algorithmic models, including pricing algorithms, and their activity. The Competition and Markets Authority (CMA) in the UK has announced its intention to consider this area and put a requirement on boards to ensure they are not breaching requirements. Regulatory issues are manageable but should be factored into the implementation of a system that you don’t fall into compliance problems.

Ultimately, dynamic pricing offers real potential to retail businesses but also, for those unprepared, real dangers. To ensure your journey in this area remains a smooth one, get in touch with Chris Williams

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