It’s been a case of more of the same as we look back at Q2 in the UK retail sector, with volumes of strategic buys from trade continuing to outstrip deals from private equity. We also find overall subdued levels of deal activity – though we’re seeing pockets of strategic value being found in niche sectors of retail and some strategic deals across the wider European market.  

With retail at the sharp end of economic cycles, we still see confidence as a major player. Whether that’s levels of confidence for a potential buyer, or the confidence levels of consumers – both are helping suppress the appetite for deals to be done. The cost-of-living crisis may have largely left the news cycle, but it’s still very much present in the deals cycle, and the impact of potential tariffs has further exacerbated this uncertainty. 

However, in pockets of retail, we’re still seeing strong opportunities. Across health and wellness, pet and beauty, there are notable exceptions to overall trends, while the market in apparel continues to be difficult to navigate. 

UK retail M&A volume/value

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Sources: Mergermarket, Trade Press

Why is Private Equity (PE) still reluctant to enter the retail market?

Private equity firms prefer predictability and defensibility. However, retail is heavily exposed to macro trends including inflation, interest rates, cost of living squeezes and more recently – tariff uncertainty. As a result, finding private equity cash for retail businesses is proving difficult and there remains a high bar for an investment case in retail.

While the COVID-19 pandemic drove sales upwards, especially online for retailers, recent geopolitical events have largely driven up costs, combined with additional NI contributions, meaning even those with strong foundations have had their margins squeezed.

With not many PE houses buying, we’re in a ‘Catch-22’ situation, as PE houses struggle to eye a profitable exit route to realise their returns. Selling a retail business if tougher: IPO appetite is limited and trade buyers may be facing the same headwinds. Afterall, if in three to five year’s time, there’s limited exit options, buying now looks increasingly risky. And so, appetite remains suppressed.

Q2 investments in the retail sector

Deal volume by sub-sector

Sources: Mergermarket, Trade Press

Trade buyers search out strategic advantage

M&A remains an important growth lever for many buyers in the market looking for acquisitions that accelerate their strategic plans and provide them with competitive advantage – such as buyers who want to break into a new category or search out niche areas. It’s a complex picture, with value to be found and deals to be done even if overall volumes are still limited.

Two example deals from the sector this quarter are:

Sale of Karrimor, the outdoor equipment brand, to Adastria and ITOCHU – a strategic sale to unlock more value from a known brand

In March 2025, Japanese business ITOCHU and fashion retailer Adastria jointly acquired Karrimor. The deal aims to position Karrimor as a broader lifestyle brand rather than technical outdoor equipment brand.

Together the Japanese businesses aim to scale the brand in Japan's competitive casual lifestyle consumer market using ITOCHU’s brand strategy expertise and Adastria’s local market retail operations.

Dunelm plc’s acquisition of Designer’s Guild

In April 2025 Dunelm, Britain's leading homeweares retailer acquired the Designers Guild Brand and design archive. The deal involves Dunelm licensing back the brand to Designers Guild to allow them to continue operating its own business and stores. Founder Tricia Guild remains creative director and the existing management team continue to run the business.

The next six months in retail M&A

We feel there’s unlikely to be any great shift in the landscape as we move into the latter part of the year. The conversation about US tariffs seems to be dying away and it’s had less of an impact than anticipated on the M&A market. Generally settled economic outlooks should provide some welcome security for those looking to make moves.

There continues to be a notable gap on valuation between buyer and seller. Even where a business may have strong underlying fundamentals, sellers are often struggling to get the kind of valuations they’re seeking – and a reduced buyer pool is not creating competitive tension or conditions favourable to sellers. This will be a key gap to bridge to get deal flow moving in the future.

There will likely be more strategic buys from trade across all of Europe and this may provide private equity with increased confidence in the sector.