Retail M&A Year in Review

J. Steven Patterson

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Retail Industry 2021 Year in Review: 2021 Retail M&A Year in Review

by: J. Steven Patterson, Austin Maloney of Hunton Andrews Kurth - Hunton Insurance Recovery Blog

Thursday, February 3, 2022

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RETAIL INDUSTRY 2021 YEAR IN REVIEW

2021 represented progress in a return to “normal” after a bumpy year for retailers in 2020. Increased consumer spending in the US retail sector dovetailed with a flurry of M&A activity in the sector and the broader marketplace. Dealmakers, continuing the momentum of the second half of 2020, moved at a record pace in 2021. Global M&A activity totaled $4.4 trillion in the first three quarters of 2021. This torrid pace represented close to twice the amount of deal volume in the first three quarters of 2020 ($2.3 trillion) and the strongest M&A market by volume since recordkeeping began in 1980.¹

Unlike 2020 when the uncertainty resulting from the onset of the pandemic slowed deal volume across the board in the first half of the year, M&A markets were undeterred by sporadic shutdowns and the emergence of new COVID-19 variants in 2021. The strong M&A volume was driven by an increase in average deal value ($83 million) and the continued increase of private equity activity. Deals worth greater than $5 billion also significantly increased, with 99 deals valued more than $5 billion reported as of November 15, 2021, compared with only 54 deals of comparable size during all of 2020.²

In the retail sector, M&A activity was driven by private equity investors, shifting consumer preferences due to more time spent at home and a growing preference for health and sustainability-focused products. According to a report published by KPMG, through Q3 2021, there were 469 M&A deals in the consumer and retail space involving private equity. While strategic buyers still represent a larger share of the consumer and 2021 represented progress in a return to “normal” after a bumpy year for retailers in 2020. Increased consumer spending in the US retail sector dovetailed with a flurry of M&A activity in the sector and the broader marketplace. Dealmakers, continuing the momentum of the second half of 2020, moved at a record pace in 2021. Global M&A activity totaled $4.4 trillion in the first three quarters of 2021. This torrid pace represented close to twice the amount of deal volume in the first three quarters of 2020 ($2.3 trillion) and the strongest M&A market by volume since recordkeeping began in 1980.1 Unlike 2020 when the uncertainty resulting from the onset of the pandemic slowed deal volume across the board in the first half of the year, M&A markets were undeterred by sporadic shutdowns 2021 Retail M&A Year in Review retail M&A market, private equity deal-making increased by nearly 45% in the space as compared with the first three-quarters of 2020.³ The acquisition of Stamps.com for approximately $6.6 billion by Thoma Bravo, a US-based private equity firm, was a high-profile example of private equity acquirers finding value in legacy e-commerce brands. The deal closed in October 2021.⁴

Despite the increasing focus on e-commerce from strategic and private equity investors, brick-and-mortar retailers were not left out of the deal-making frenzy in 2021. One of the largest international M&A deals in 2021 was the acquisition of UK-based grocer Morrisons, by Clayton, Dubilier & Rice, a US-based private equity firm.⁵Another legacy, traditional retail brand, Michaels, the arts and crafts retailer, was acquired by Apollo Global Management in a deal worth approximately $3.3 billion. Apollo’s acquisition took Michaels private at a 47% premium per share against its stock price prior to the deal’s announcement.⁶

Looking Ahead to 2022

Despite a record year of M&A in 2021, the year ahead may prove to be just as active. Aggressive valuations, low-interest rates and a surplus of dry powder at private equity firms provide reason to believe that 2022 will come close to matching, or exceeding, 2021 in M&A activity. 80% of executives surveyed by KPMG said they expect target valuations to continue to rise in 2022. In the same survey, only 7% of executives felt that there would be a decrease in M&A activity in their industry sector in 2022.⁷

We expect private equity to continue to play a leading role in driving M&A volume both generally and in the retail space. As of November 2021, private equity funds had raised $714 billion in committed capital in 2021 alone.⁸ These funds will likely continue the trend of go-private deals by acquiring publicly traded, legacy brands or seek to bolster prior acquisitions with complementary add-on acquisitions.

E-commerce and digital platforms will also remain a significant area of focus for strategic and private equity acquirers in 2022. The prevalence of WFH employees and continued threats from COVID-19 variants have sustained and increased the attractiveness of retailers who have thrived in a digital, stay-at-home environment. Fitness companies, healthier food brands and pet supply businesses have all been newsmakers in the past year, and further interest in these sectors is to be expected.

Despite minor headwinds such as potential interest rate rises and continued uncertainty around the pandemic’s conclusion, we expect deal-making activity to remain strong in 2022, led by e-commerce and investors seeking to unlock value in legacy brands.