UK retail sector M&A deals increase 21% on last year

The number of M&A deals targeting UK retailers has increased by 21% in the last year, up from 28 transactions to 34 in the last 12 months, as deals in the sector “buck the overall slowdown in M&A”, according to RPC, the international law firm.

Overall, UK M&A activity has fallen 15% over the same period from 2,490 deals to 2,120 M&A deals in the last year.

In Q2 2022 (up until June 30), four of the nine retail M&A deals (44%) involved the acquisition of a distressed retailer e.g. McColl’s and Roland Mouret. RPC said this is a “significant increase” given that just two deals involving distressed retailers occurred in the previous three quarters combined.

It added the area driving M&A activity in the retail sector over the past six months has been deals targeting fashion retailers, such as Hervia, which made up 31% (5) of all deals. This is an increase on the previous six months when 22% of deals involved the acquisition of fashion companies.

Karen Hendy, co-head of Retail at RPC, said: “The number of deals in the retail sector has held up remarkably well but that is partly due to an increase in the number of distressed retailers being put up for sale.

“There are understandable concerns over whether retailers are going to able to pass on the sharp increases in their costs to customers and concerns over the depth of any recession which is leading to greater consolidation. We’re also seeing more partnerships where one retail brand takes space within another group’s stores.”

She added: “M&A deals are also concentrated in the small and mid-sized retailers with fewer of the megadeals of that we saw last year. There is still a lot of pent-up demand from PE and trade buyers especially for strong brands in premium fashion.

“If the Golden Quarter falls short, then we would also expect to see more activity from those funds that specialise in buying distressed retailers who have been fairly quiet over the last year.”