Retail merger deals decline as Brexit uncertainty hangs over high street
The value of transactions was lower after the Sainsbury’s and Asda deal was called off.
The number of takeovers in the UK’s retail sector tumbled over the past year, as Brexit uncertainty clouds the future of the high street.
According to law firm RPC, the number of merger and acquisitions (M&A) was down 24% in the year to March 31, with a total of 27 going through.
This compared to 37 transactions in the prior year, as dealmakers delayed decisions over the impending threat of Brexit.
“It’s likely that deals that may have gone through a few years ago are now being put on hold due to the perceived risk Brexit has created,” said Peter Sugden, corporate partner at RPC.
“Usually after a period of uncertainty, deal volumes bounce back.”
The overall value of retail M&A plummeted to £222 million in the period, down from £3.7 billion in the year before.
The total was affected by the blocking of the tie-up between supermarkets Asda and Sainsbury’s, which would have been worth £7.3 billion.
Almost half of the deals that made it to completion involved distressed companies, as many high street players buckled under rising costs and competition from online.
Recent deals include Bestway’s acquisition of Wine Rack and Bargain Booze from the collapsed Conviviality.
Meanwhile firms which specialise in turnaround situations have been buying up high street casualties, with private equity firm Endless picking up American Golf and Hilco Capital taking over Homebase.
Mr Sugden said: “The most attractive distressed assets continue to be those which serve a strong consumer purpose and have a mature e-commerce offering but have been struggling under the weight of debt or poor operational management.
“Dealing with issues such as these is often seen as low-hanging fruit for bidders to drive value.”