Retail M&A slowdown as private equity backs away from high street

Hannah Wilkinson
Burberry brushed off acquisition attempts in 2016
Burberry brushed off multiple acquisition attempts in 2016 (Source: Getty)

The value of UK retail mergers sunk to a three-year low in 2016, with just 36 mergers agreed - down from 47 in 2015 according to law firm RPC.

The new figures released today suggest that total deal values have also slumped from £20.7bn down to just £4.7bn, a decline which outpaced a post-Brexit slowdown in M&A activity across the UK. Data from the Office for National Statistics revealed 140 successful deals involving UK companies in the three months to September 2016, compared to 278 transactions in the second quarter of 2015, while total deal values slumped from £34bn to £33.1bn in the same time period.

Read more: This is why investors should hope for an uplift in M&A activity this year

RPC blamed looming business rate revaluations, a volatile pound and the higher employment costs plaguing the high street for the downward trends.

These developments have also deterred private equity funds from involvement in deals. In 2016, just three were backed by private equity buyers, down from 16 in 2014, while five involved a private equity seller, including JD Sports’ acquisition of Go Outdoors from YFM Equity Partners and 3i Group.

Read more: After subdued 2016, these bankers are calling a 2017 bounceback for UK M&A

Jeremy Drew, a partner in RPC’s retail group, explained: “There has been a sense over the last year that sellers have been asking too much for retailers that did have great growth stories. That has stopped a lot of M&A deals getting any further than the first round of meetings.”

Burberry, Britain’s largest luxury goods retailer, brushed off multiple advances from US fashion label Coach in the final months of 2016, according to the Financial Times.

Independent retail analyst Nick Bubb added: "A background of accelerating structural change in the retailing sector and increasing uncertainty about the economic outlook makes it a case of “caveat emptor” for potential acquirers, over and above defensive mergers. The glut of retailing IPOs in 2014/2015 also caused a lot of indigestion in the market.”

Related articles