While U.S. Retail & Consumer Deal Activity Drops in Second Quarter, Signs Point to Increased M&A for Remainder of 2013, According to PwC US

Private Equity Continues to Show Interest in R&C

R&C IPO Activity in Second Quarter Outpaces 2012 Levels

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Aug 08, 2013, 09:00 ET

NEW YORK, Aug. 8, 2013 /PRNewswire/ -- Despite a slowdown in U.S. retail and consumer merger & acquisition (M&A) activity in the second quarter of 2013, consumer sentiment and retail sales trends remain positive, along with strong corporate balance sheets and availability of private equity "dry powder," which should help trigger M&A activity during the second half of 2013, according to PwC's U.S. retail and consumer deals insights Q2 2013 report released today.

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In the second quarter of 2013, there were a total of 21 deals worth $50 million or more in the retail and consumer sector, accounting for $5.4 billion in deal value, a 49 percent decrease in volume and 90 percent decrease in value from the 41 deals worth $40.5 billion during the second quarter of 2012. The decrease in deal activity is primarily a result of the lack of large deals in Q2 of 2013 compared to the prior year, during which time there were several large deals. There was only one mega deal (worth more than $1 billion) in the second quarter, as opposed to a trend of four successive quarters with five or more mega deals. Sequentially, deal activity in the retail and consumer sector declined, with the middle market also seeing declines, partially due to the lingering effect of the abnormally higher deal volume during Q4 of 2012 due to the impending fiscal cliff, along with the several mega deals seen in the first quarter of 2013, according to PwC.

"Coming off the heels of one of the largest retail and consumer deals in history in the first quarter of 2013, the declines we saw in the second quarter will likely be temporary as the pipeline for deals resets from the flurry of activity we've seen in the last few quarters," said Leanne Sardiga, partner and PwC's US retail & consumer deals leader. "The second half of 2013 looks promising for M&A activity in the industry given the recent pick up in businesses starting to come to market for sale, although price expectations and seller timelines continue to be a challenge."

Private equity (PE) activity was slightly above historical levels in the second quarter of 2013, as PE buyers continued to invest in the retail and consumer sector, comprising 24 percent of deal volume and 38 percent of deal value, which is relatively consistent with historical averages of 27 percent and 30 percent respectively. The apparel, footwear and accessories sub-sectors remained active, representing 20 percent of PE deal volume, which is above the 15 percent average seen over the last five years.

The trend towards omnichannel retailing continues to contribute to deal activity in the sector as retailers look at opportunities to transform their business and capabilities, focusing on innovation. Key activity in the omnichannel space in the second quarter included several acquisitions of ecommerce retail service companies. PwC expects to see increased activity in this area as investors see opportunity to gain a competitive advantage through technology for data analytics.

Retail and consumer IPO activity continues the momentum seen in the first quarter, far outpacing levels seen in 2012. Total proceeds in the second quarter of 2013 were $2.1 billion, up 161 percent from the second quarter of 2012 (proceeds of $795 million) and up 18 percent from the first quarter of 2013 (proceeds of $1.8 billion). Average deal size continued to increase in the second quarter as well, with an average deal size of $345 million for the six IPOs completed in the quarter, compared to $292 million for the six in the first quarter of 2013. According to PwC, in the overall IPO markets, R&C had the largest one-day average returns of any sector.

"While second quarter activity was relatively slow compared to the activity we've been seeing, the deals announced remain consistent with themes PwC has highlighted previously, including private equity investment in retail and activity in non-store retailing. Regionally, we expect to see continued cross-border retail activity as companies try to access certain demographics in the global marketplace," added Sardiga.

PwC's U.S. retail and consumer deals insights is a quarterly analysis based on data for transactions with a disclosed deal value greater than $50 million, as provided by Thomson Reuters through June 30, 2013, and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets.

PwC's Deals practitioners help corporate and private equity executives navigate transactions to increase value and returns. In today's increasingly daunting economic and regulatory environment, our experienced M&A specialists assist clients on a range of transactions from smaller and mid-sized deals to the most complex transactions, including domestic and cross-border acquisitions, divestitures and spin-offs, capital events such as IPOs and debt offerings, and bankruptcies and other business reorganizations. We help clients with strategic planning around their growth and investment agendas and advise on business-wide risks and value drivers in their transactions for more empowered negotiations, decision-making and execution. We help clients expedite their deals, reduce their risks, capture and deliver value to their stakeholders and quickly return to business as usual. Our local and global deal strength is derived from over 1,500 deal professionals in 35 cities in the U.S. and over 13,400 deal professionals across a global network of firms in 75 countries. In addition, our network firm PwC Corporate Finance provides investment banking services within the U.S. For more information, visit www.pwc.com/us/deals.

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