Why did the UK’s retail sector see so few transactions last year, even though the deals’ total value went up?
In 2023, the UK retail sector faced tough times. Inflation and higher interest rates shrunk household budgets. This hurt retail sales for another year. The Office for National Statistics (ONS) showed that trouble from Red Sea supply chain issues made things worse. These troubles affected clothes, household goods, and appliances. Next, a big retailer, warned that prices might go up because of these issues. </ like to make new friends, but I'm pretty shy, so it's hard for me sometimes.
M&A activities were cautious, leading to a record low in deals since 2010. Only 38 deals were done, yet they were worth £3.48 billion. Big deals were made, like Asda’s £2.27 billion buy of EG Group’s UK and Ireland operations in May. Poltronesofà bought ScS for £122.7 million in October. Mars Inc. took over Hotel Chocolat for £534 million in November. Next plc also took strategic action by acquiring FatFace for £119 million in October.
Introduction to M&A in the UK Retail Sector
The UK’s retail sector has seen a lot of attention on mergers and acquisitions. This is especially true in uncertain economic times. Factors like inflation, interest rates, and global events have greatly changed these deals. There are different M&A investments, such as inward, outward, and domestic M&A. Each has been crucial in helping major retailers adapt to market changes.
In 2023, big names like Asda and Next made significant acquisitions to improve their place in the market. They moved forward despite concerns about consumer demand and the costs of running a business. The industry preferred to invest selectively. This approach was taken to cope with fast market changes and ensure value during economic hardships.
The M&A Survey covers deals worth £1.0 million or more. It offers deep insights into the retail sector’s mergers and acquisitions. Types of deals include mergers, demergers, takeovers, and joint ventures. Such transactions shape the UK’s foreign investment, Balance of Payments, and Financial Accounts.
Financing troubles and differing views on value between sellers and buyers have slowed down M&A in retail. Yet, this situation has built up demand and assets ready for sale. As shoppers start to feel more confident, a full recovery of M&A activity in the UK retail sector is expected soon.
Impact of Economic Factors on Retail M&A
In 2023, UK retail M&A was hit hard by rising inflation and higher interest rates. This led to a drop in consumer spending, which in turn, affected M&A activity. We saw only 38 retail M&A deals, the fewest since 2010.
Even though fewer deals happened, their total value jumped to £3.48 billion. This was an 82% increase from 2022. A big part of this rise was Asda’s £2.27 billion buyout of EG Group’s UK and Ireland operations.
Some standout deals showed the market still had opportunities. For example, Poltronesofà bought ScS for £122.7 million, and Mars acquired Hotel Chocolat for £534 million. These deals in October and November showed brands were still keen to grow.
Another big move was Next buying FatFace for £119 million in October. This showed how companies were smartly expanding despite the tough economy.
The Raine Group led a £145 million investment in Castore. This was due to Castore’s strong performance, with turnover doubling to £115 million. Their EBITDA also grew from £8.2 million to £17.1 million, showing investor confidence.
In 2023, consumer price inflation started to slow down. This brought hope that interest rates might drop later on. It hinted at better days ahead for consumer confidence and spending.
Thus, the retail sector might see a bounce back in 2024. Consumer confidence is expected to rise, potentially sparking more interest from investors.
Despite tough times, some M&A deals stood out, proving there are still opportunities. These strategic investments show there’s value to be found even when times are hard.
Key M&A Transactions in 2025
In 2023, the retail M&A scene saw global deal values cut in half to US$2.5tn from their 2021 highs. The acquisition of EG Group by Asda stands out. This deal let Asda improve its offerings by adding EG Group’s UK and Ireland operations.
Another big move was Poltronesofà buying ScS. By acquiring this well-known UK sofa and furnishings retailer, Poltronesofà secured a strong position in the UK market. This showcased the Italian company’s drive to grow in new areas.
The Mars and Hotel Chocolat deal was also key. Mars Inc. buying Hotel Chocolat showed how companies value expanding their brands. This buyout points to the trend of consolidating global brands, especially in a softer market.
Last year, the total number of global deals fell by 17%, to about 55,000 from over 65,000 in 2021. The drop in big deals, valued over US$5bn, was steep. They fell by 60%, to under 60 deals.
Challenges Faced by Retailers in 2023
In 2023, UK retailers faced many challenges. These challenges came from economic troubles and external market forces. Consumer spending was low because of the poor economy, high inflation, and rising rates.
A major problem was supply chain disruption. This issue was made worse by incidents like the Red Sea blockage. These disruptions led to stock shortages and problems with pricing and managing inventory.
This year, businesses were cautious about mergers and acquisitions (M&A). They focused on dealing with tough market conditions instead of expanding. There were 38 acquisitions in the UK retail sector, a 23% rise from last year. But, retail insolvencies jumped up 56%, with 1,942 cases in 2022/23.
Consumer confidence was low, affecting M&A activity. A big part of transactions involved distressed acquisitions. Online retail sales were not growing, and a 3% decline was expected for 2023.
Luckily, areas like London’s Oxford Street saw some positive signs, with several new deals. However, the overall retail scene still faced big problems. UK retail sales went down 1.2% in July 2023. Non-food retail and supermarket sales also saw declines because of high prices.
Retailers need to tackle these issues directly, aiming to strengthen their business and regain customer trust. Understanding these complex challenges is key to surviving in today’s tough retail world.
Role of Private Equity in Retail M&A
In 2023, private equity played a big part in UK retail M&A but with caution. The economy’s condition, marked by wary consumer spending and uncertainty, led to careful investment. Despite this, certain niche brands, like Castore with its £145 million investment from The Raine Group in November, showed appeal for equity funding.
Private equity firms focused on strategic buys, looking for companies with strong business models. Castore is an example, growing its revenue from £49 million to £115 million and its EBITDA from £8.2 million to £17.1 million between January 2022 and January 2023. Such growth shows why equity funding tends to go to brands that perform well, even when the market is shaky.
In 2023, 24% of the 38 retail deals were about saving and reshaping struggling companies. This shows private equity’s role in fixing and improving distressed assets. There was also more interest in investments focusing on ESG, seen in movements towards companies like Passenger, Think Better Group, and Monica Vinader.
The total value of retail deals in 2023 reached £3.48 billion, 82% more than the year before. Big deals, like Asda buying UK and Ireland operations of EG Group for £2.27 billion, played a key part. This shows how private equity is strategic yet powerful in its engagement with the retail sector during tough times.
Notable UK Retail Sector M&A Deals
In 2023, the UK retail sector faced tough conditions but still attracted big investments. A total of 38 acquisitions marked a 23% increase from the previous year. One key deal was Next’s purchase of FatFace for £119 million, showing its push for diversity.
Mars Inc. bought Hotel Chocolat for £534 million, showing its focus on valuable brands. Added to this, Asda’s takeover of EG Group’s UK and Ireland operations for £2.27 billion aimed at broadening its market reach.
The retail deal value soared by 82%, hitting £3.48 billion. This shows brands with unique qualities were highly sought after. Another highlight was Poltronesofà’s buyout of ScS for £122.7 million amidst the uncertain market climate.
Nearly a quarter of the year’s deals were distressed acquisitions. This shows a strategy to turn challenges into opportunities for growth and diversity in the UK retail sector.
With 10 stores on London’s Oxford Street changing hands, 2023 saw the highest activity since 2020. This indicates a strong real estate market with promising investment opportunities.
Strategic Adaptations of Retailers
In 2023, UK retailers faced tough economic times. They changed their business ways and operations to stay in the game. High prices and low shopper trust made these changes necessary. This helped companies stay in the race.
Deal-making and acquisitions were key strategies. Retailer Next buying FatFace was a big move. This helped Next spread its wings by enhancing its distribution and reaching more shoppers.
Looking into 2024, the shopping world is set to change. Trends and new tech like Generative AI will reshape how we shop. These advances promise better shopping experiences and smarter supply chains.
The business scene is getting better for retailers. This new phase allows for bigger, bolder business moves. Companies can now adapt and grow stronger in the face of change.
Even though 2023 saw fewer big deals in retail, there’s hope. As we stepped into 2024, people started feeling better about spending. This change is creating a better scene for retail businesses to thrive and innovate.
Rescue and Restructuring in Retail M&A
In 2023, the UK retail M&A sector saw a lot of rescue and restructuring works. There were only 38 deals, the least since 2010. Experts focused on pre-pack deals and fixing finances to deal with tough market conditions.
The UK retail M&A’s total value went up by 82% from the last year to £3.48 billion. A quarter of these deals were about saving and redoing the finance bits. A big deal was Asda buying EG Group, which added a lot to the deal value.
The last quarter of 2023 saw key deals aimed at making companies work better. Poltronesofà bought ScS for £122.7 million. Mars got Hotel Chocolat for £534 million. Next made a deal for FatFace at £119 million. These deals picked brands that needed financial help.
Private equity’s investment was key, too. Castore, a luxe sportswear brand, got £145 million from The Raine Group. This move doubled its turnover and lifted its EBIT/DA. It shows that investors still back good brands, even when markets are tough.
Also, retail insolvencies went up by 19% from the year before. The e-commerce part of retail saw an 18% rise in insolvencies. A notable move was Bensons for Beds taking over the online mattress seller Eve. This shows the need for good rescue plans.
Investors are also looking at companies focused on ESG, like eco-clothing brand Passenger and Think Better Group. This trend points to a bigger push for sustainability in business rescue and fixing strategies.
The Centre for Economics and Business Research (CEBR) predicts more than 8,000 insolvencies every quarter in 2024. Retail might be hit hard. This outlook highlights the ongoing need for smart pre-pack deals and financial fixes to keep retail businesses going.
For more insights into retail M&A trends, you can talk to experts like Nicola Sartori, Christopher McLean, or Raj Kumar.
Trends Shaping Retail M&A in 2025
In 2023, the retail M&A scene saw huge changes due to changing consumer habits, ESG investing, and fast digital growth. Total deal values fell to US$2.5 trillion, a sharp drop from the US$5 trillion high in 2021. Deal numbers also went down by 17%, from more than 65,000 to about 55,000.
Despite the drop, sectors like energy, tech, and pharma bounced back in M&A activities. There was a move towards mid-market deals, thanks to better financing. This shows how the industry is adjusting to new markets and consumer wants.
The EU&R sector saw a nearly threefold increase in big deals in 2023. The biggest tech deal was Cisco’s US$28 billion bid for Splunk, highlighting the impact of digital changes on growth.
However, financial and healthcare services might face hurdles in 2024. This matches a wider caution in the market. But, the S&P 500 and NASDAQ saw big gains late in 2023, suggesting things might steady.
In Italy, retail M&A went up 8% year-over-year, while France’s deals dropped 29% due to market issues. The UK’s consumer sector saw a 6% drop in M&A, with EBITDA margins down by 5%, showing the varied outcomes in Europe.
The global retail M&A in 2023 showed less activity. Yet, the focus on consumer behaviour, ESG, and digital growth gives a complex view of how firms are adapting and staying tough.
Outlook for Retail M&A in 2024
As 2024 nears, the UK’s retail M&A scene shows signs of change. Factors like lower inflation and interest rate cuts could boost consumer confidence. This, in turn, might lead to more investment in various sectors.
Economic stability could revive the M&A world. The global C&R M&A market shrank by 4% from last year, with deal values falling 27%. Yet, with private equity firms sitting on US$2.5 trillion, there’s a push to make deals, boosting investment confidence.
The UK looks set to bounce back despite global challenges. Europe’s C&R M&A deals dropped by 11%, and ASPAC’s by 4%. Yet, the UK retail sector is strong, ready for more divestments and omni-channel growth. Combining online and in-store shopping will be key.
Luxury, pet care, and health drinks are drawing more investor interest. New technologies like GenAI could improve supply chains, helping the sector’s recovery. Despite the uncertain future, due to global concerns, the outlook for UK retail M&A remains hopeful.
Conclusion
The UK’s retail sector saw both caution and strategy in its M&A movements in 2023, amidst economic challenges. There were only 38 retail M&A deals, the lowest since 2010. Yet, the deals’ value jumped to £3.48 billion, an 82% rise from the year before. A standout was Mars buying Hotel Chocolat for £534 million.
The last quarter was quiet with just 10 deals. But, there were major moves, like Castore’s £145 million funding. This investment more than doubled Castore’s turnover to £115 million. It also upped EBITDA to £17.1 million, showing how retail strategies are changing, especially for brands with strong ESG values.
2024 looks more positive for retail M&A, with expected economic stability and rising investor trust. The sector should become more adaptable and innovative. But, it faces challenges like slow growth, higher debt payments, and big business rates. Yet, areas like Health & Beauty are still strong, highlighted by Boots’ potential £7 billion IPO. The sector’s strength and flexibility in 2023 suggest it’s set for big changes and growth ahead.
