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Q1 retail sector M&A activity defies inflation threat

New analysis from Grant Thornton UK LLP’s quarterly retail sector M&A report shows that though record inflation has put household budgets under immense pressure and squeezed consumer spending, this did not dampen appetite for retail assets in Q1.

In the first quarter of 2022 there were 18 deals completed in the sector, the second-highest quarterly level since the start of the pandemic.  The £1.5 billion announced deal value for the quarter was more than double that of Q1 2021 but was down from £4.4 billion announced in Q4 2021 (although this included the £4 billion Selfridges sale).

The quarter’s biggest reported deal was Antin Infrastructure Partners sale of UK motorway services 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.

According to Nicola Sartori, Head of Retail and Consumer M&A at Grant Thornton UK LLP, some of the most interesting factors behind this strong start to the year are the resurgence of trade buyers and the continued interest of overseas buyers, particularly from the USA.

Nicola says: “Since last summer, we have been seeing a resurgence in activity from trade buyers, who historically have been very active in the sector but pushed pause on their acquisition strategy due to conditions created by the pandemic. 

“As ‘post-coronavirus’ trading has stabilised, concerns about store closures and the Covid-bounce effect on company valuations have become less relevant. A good example of a trade buyer seeing a strong strategic acquisition opportunity is PZ Cussons’ acquisition of Childs Farm as a ‘must win brand’ that holds a leading position in its priority markets. PZ Cussons will use its brand building capabilities to increase Child’s Farm’s market share as well as help it to grow internationally.

“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 have established sales in the US and have a clear growth strategy that features the US market. High profile examples include Wolverine World Wide’s 2021 acquisition of Sweaty Betty and General Atlantic’s 2020 investment in Gymshark.”

Commenting on what’s next for sector investment in 2022, Nicola added:

“Retail-sector watchers will be keeping a close eye on allocation of household spending, considering the impact of inflation. 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 be able to ride them). They may, however, look for lower multiples to counterbalance a foreseeable choppy consumer environment.”