Bright Retail M&A Outlook for 2015

Retailers rounded out 2014 with strong sales performance and the longest holiday shopping season on record, leaving chief financial officers (CFOs) feeling sunny and optimistic about 2015. Looking forward, those retail leaders expect warmer weather will rebuild sales momentum moving into the spring and summer. They project a 3.9 percent increase in total sales and a 3.7 percent increase in comparable store sales, close to the National Retail Federation (NRF)’s 4.1 percent growth projection for 2015.

In today’s highly competitive retail landscape, sharp-eyed CFOs see M&A as one way to strategically accelerate growth. According to an industry survey of 100 retail financial leaders, 59 percent expect the number of industry deals to increase in the year ahead.

According to the survey "strategic buyers will be primarily targeting market share (cited by 43 percent) and increased geographic coverage (cited by 24 percent, up from just eight percent in 2014). Another 16 percent say increased revenue and profitability will be the top driver of strategic deals, 12 percent say technology assets and intellectual property, and six percent point to increased distribution channels. In terms of where M&A will take place, 73 percent of CFOs expect it will primarily occur in the United States and 15 percent expect Asia to see the most activity. Survey respondents also expect buyers will pay an average EBITDA multiple of 5.2, up from 2014’s projected multiple of 4.2."

Stiff competition often leaves leaders with fewer options for gaining market share. Acquisition gives them a larger retail footprint and broadened access to the additional customers they need. In today's digitized marketplace, those retailers with established digital storefronts are often viewed as the most desirable and ripe for growth. Those same CFOs are poised to dedicate 22 percentage point to e-commerce and mobile channels - mobile being the most prioritized area of growth. Consumers crave speed and ease of shopping, those staying ahead of the pack in that arena are better set to capture market share and - possibly -find themselves in the midst of lucrative transactions. 

With e-commerce expansion comes cyber security concerns, bringing up another hot topic: investments in IT security platforms and technologies. Customer data protection is often cited as a top concern to C-suite execs, so we anticipate seeing tremendous market activity as retailers seek to bolster their barriers against cyber attacks and avoid costly (and embarrassing) public exposure as the result of data breaches. 

We are excited to see increased activity in this sector and are looking forward to guiding clients through the transaction process. 

* data from Retail Compass Survey of CFOs.