How did the retail sector start the year?

The first few months of 2023 saw more deals being done, as businesses adapted to changing conditions, but the market is still not fully open – private equity has turned away from consumer-facing industries under pressure from cost-of-living concerns. 

A clear indicator of long-term changes is the growth of the buy now pay later (BNPL) sector - this new payment solution brings opportunities, but businesses relying on it need to understand potential challenges so they can quickly adapt if their provider fails. 

You can find out which traders are taking opportunities, and how to ensure BNPL works for your business in our latest review. 

2023 M&A appeared to start respectably, with 12 deals completed in the first three months of the year. Three of these deals involved distressed assets (Cath Kidston, Matalan, and stationery retailer Complete Business Solutions Group) as companies battled with pandemic restrictions and a decline in consumer spending due to cost-of-living pressures. Although deals are getting done, the market is a long way from being fully recovered.

Trade buyers pounce while private equity (PE) takes breath

UK retail M&A volume/value

Chart depicting the UK retail M&A volume/value

Corporate buyers continued to dominate M&A activity (ten deals) as private equity (two deals) continue to remain nervous about consumer sentiment. We expect this to be the case until inflation eases throughout the year – the Bank of England's Monetary Policy Committee anticipates that Consumer Price Index (CPI) inflation will fall significantly in Q2. A lack of PE competition allows trade buyers to strengthen their portfolios and boost revenues by adding new brands.


Heroes acquires Trunki ride-on cases

In February, brand aggregator Heroes acquired Magmatic, the business behind Trunki ride-on suitcases. Heroes is a technology-driven company that buys, operates, and scales family-focused brands. Heroes was founded in 2020 and owns around 35 brands. It started as an Amazon consolidator but today invests in brands (such as Trunki) that can thrive outside of the dominant online marketplace.

E-commerce aggregators, which rose to prominence during the pandemic, operate by building portfolios of online marketplace brands. For example, they might acquire several brands selling identical products and combine them for buying efficiency.

It's an interesting and developing section of the market, with Thrasio, the market leader, raising $1 billion in a 2021 Series D fundraising.

Reaching the bar – private equity seeks solid fundamentals

Amid squeezed household incomes, PE has largely pressed pause on consumer-facing industries. Funds are currently only targeting companies that meet a very high bar in terms of consumer proposition and business fundamentals.

Bridgepoint acquires jewellery brand Monica Vinader

In March 2023, Bridgepoint Development Capital made a strategic investment in affordable-luxury jewellery brand Monica Vinader, creating an exit for Piper and Winona Capital. Monica Vinader's focus on sustainability coupled with a celebrity/influencer following has led to overall sales quadrupling to c. £100 million since 2016. In addition, it has established positions in global markets, including China and the US.

ESG drives green deals

As sustainability becomes more important for consumers and debt providers, investors are seeking brands with strong ESG credentials, such as fashion retailer Kettlewell and online plant delivery firm Patch.  

Refined Brands adds Kettlewell to its portfolio

We advised Refined Brands on its January acquisition of Kettlewell Colours. Founded in February 2021, Refined Brands is a portfolio of digitally-native, ethically-sourced, natural and sustainable British brands. Its stable also includes Cornish lifestyle brand Celtic & Co, ethical childrenswear brand Frugi, and the upcycled cashmere brand Turtle Doves.

Green growth for Arena Flowers and Patch Gardens

In January, flower and gift delivery company Arena Flowers acquired Patch Gardens. Arena is ranked as the UK's most ethical florist, with a perfect 100 score on the Ethical Company Index. Direct-to-consumer plant-delivery brand Patch was founded in 2015 to cater for a new breed of 'urban gardener'. The business plans to combine fulfilment expertise and consumer brand development to grow into adjacent categories through organic expansion, channel development, and further M&A. 

Looking forward

There are several reasons to be optimistic about retail M&A in 2023. Our corporate finance teams have been busy this quarter working with parties looking to complete deals this year. We expect the market will continue to slowly open up, resulting in further completions towards the second half of this year.

For more insight and guidance, get in touch with Nicola Sartori.


We're seeing new entrants to the market all the time, including Apple announcing in March 2023 that their BNPL product will be integrated with Apple Pay, increasing competition among existing market leaders such as Klarna, PayPal, Laybuy, and Clearpay.

According to research from Bain & Co, while there's significant usage of BNPL among most age groups, it's more popular with Gen-Z and millennials. BNPL is used by people across all demographics, typically for purchases under £100, although the cost-of-living crisis means it's being increasingly used for ‘necessity’ items.

How do retailers benefit from BNPL?

BNPL products generally don't carry interest, but BNPL providers charge retail merchants a fee. Some, but not all, charge late fees to the customer. Importantly, the customer relationship is owned by the BNPL provider, rather than the retailer.

A BNPL offering is now a key part of many retailers growth plan, bringing various benefits, including: 

  • being paid in full at the point of purchase, with credit and fraud risk passed on to the BNPL provider
  • increasing the affordability of the retailers’ products by spreading the payment over instalments
  • attracting new customers by offering flexible payment options and leveraging a BNPL provider’s customer base to drive website traffic
  • customer loyalty, particularly when they have a positive experience with BNPL

FCA regulation on the horizon

Following the Woolard Review in 2021 and subsequent FCA consultation in 2022, BNPL is due to come within the regulatory perimeter, although final rules aren't expected until 2025. In the interim, the FCA has proposed that rules on creditworthiness assessments and how to treat customers in financial difficulty should be introduced, and customer complaints should be referred to the Financial Ombudsman Service.

BNPL firms will also need to develop workable solutions with credit reference agencies, allowing a consumer’s BNPL debt to be viewed by other credit providers as part of their required affordability assessments.

Challenges ahead for BNPL

BNPL providers have been buffeted by slower consumer spending, higher funding costs, increasing delinquency rates and intensifying competition. Valuations have suffered as a result. For example, in July 2022, Klarna’s valuation was cut from USD 46 billion to USD 6.7 billion and Affirm’s stock price is down 77% over the past year. Australia’s OpenPay, which only floated in 2019, went into receivership in February 2023 after suffering heavy losses.

Many BNPL firms have already started preparing for regulation, but the sector will still need to navigate significant change. Ensuring adequate affordability assessments, processes to identify vulnerability, and complying with regulation will take time and require significant resource.

What does this mean for retailers?

BNPL is here to stay. But retailers should be cognisant of challenges in the market. It's possible that it could promote impulse spending and, as the sector matures BNPL providers may look to charge higher merchant fees. In the event your BNPL provider fails retailers may need to quickly stand-up an alternative provider to minimize the impact on sales.

Retailers should use scenario analysis and stress testing to understand the potential impact across their business if this did happen. This will support a contingency plan, and give a level of comfort that there are adequate controls and procedures in place to mitigate the situation.

For more insight and guidance, get in touch with Jarred Erceg.

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