A key factor driving mergers and acquisitions (M&A) is the decline in demand due to consumers reducing their discretionary spending. Credit: Vitalii Vodolazskyi via Shutterstock.

The number of mergers and acquisitions (M&A) in the UK retail sector has surged to its highest level in five years, according to recent data.

Research conducted by law firm RPC reveals a notable increase of 23% in M&A deals targeting UK retailers over the past year, with the figure rising from 31 deals in the year leading up to March 2022 to 38 deals in the same period ending in March 2023.

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Notable retail acquisitions

Among the prominent retail acquisitions that contributed to this surge were Matalan, a popular retail chain, which was acquired by its investors, including Invesco, Man GLG, Tresidor and Napier Park, in January.

In April, the takeover of maternity wear brand Seraphine was carried out by its largest shareholder, Mayfair Equity Partners.

In the previous year, Cambridge Satchel Company had been sold to France-based textile company Chargeurs in August, while Joules was bought out of administration by Next in December.

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Decrease in distressed assets deals

Interestingly, the research also revealed a decline in the proportion of acquisitions involving distressed assets.

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In the third quarter of 2022, 50% of the acquisitions were of distressed companies, but this percentage dropped to 33% in the first quarter of 2023.

This shift suggests that acquirers are increasingly targeting retailers with robust balance sheets as they look to make strategic long-term investments and expand into specific consumer demographics and new market segments.

RPC retail group partner and co-head Karen Hendy provided insights into the driving factors behind the increase in M&A activity.

She pointed out that retailers with strong financial positions are looking beyond the peak in interest rates and are strategically acquiring other companies.

The intention is to adapt to changing consumer behaviour, especially as some retailers may have misjudged how demand would be impacted by fluctuations in the interest rate cycle.

By divesting non-core assets and focusing on efficiency and inventory management, retailers can raise capital and strengthen their financial standing amidst weakening consumer demand for discretionary spending.

The retail industry’s ongoing strategic review has also witnessed significant moves, such as THG (The Hut Group) selling its OnDemand division to the management team and investment firm Gordon Brothers.

This surge in retail takeovers reflects a dynamic shift in the market as companies seek to adapt and position themselves strategically in response to evolving consumer trends and economic conditions.