New York – Merger and acquisition (M&A) activity was strong in the retail and consumer industry during the third quarter of 2013. Data from PricewaterhouseCoopers (PwC) shows that transaction values on M&A deals in the retail/consumer sector rose 112% compared to the same quarter a year earlier.
In third quarter 2013, disclosed deal values greater than $50 million totaled $25 billion in the retail and consumer sector, comprised of a total of 38 deals, up 46% from second quarter 2013 and a 27% increase from the third quarter of 2012 in total deal volume. The increase in transaction value was primarily due to the average deal size of the larger retail deals in the quarter compared to prior year.
“Deal activity improved during the third quarter, confirming our expectations that the slower deal activity in the second quarter was temporary,” said Leanne Sardiga, partner and PwC’s US retail & consumer deals leader. “We continue to see strong corporate balance sheets, healthy levels of private equity involvement, and a relatively low interest rate environment that provide good support for an active deal market to close out the year, but there are some potential headwinds that companies will be confronted with. With a lack of quality assets for sale, a mismatch in buyer and seller price expectations, as well as increased sophistication and preparation by sellers, it’s even more critical for potential buyers to have a disciplined and objective M&A process to navigate these challenges.”
Private equity (PE) activity in retail remained strong, although PE’s relative deal share compared to corporates has been slowing, which PwC says is likely indicative of the shrinking population of attractive opportunities, according to the report. For announced deals over $50 million, PE volume as a percentage of total deal volume was 24%, down from 31% in second quarter 2013, but up from 20% in third quarter 2012. PE value as a percentage of total deal value was 35%, down from 46% in second quarter 2013, but up from 20% in third quarter 2012.
Consistent with prior quarters, the trend toward omni-channel retailing continues to drive deal activity as retailers look at acquisition opportunities to more quickly transform their businesses and capabilities. PwC expects to see continued activity as more investors seek these opportunities and companies attempt to gain a competitive advantage in using technology for data analytics.
Retail and consumer IPO activity during the third quarter remained fairly consistent with the momentum seen in the first half of the year. Total proceeds during the quarter were $1.3 billion, up 61% from the prior year quarter and down 35% from second quarter 2013. According to PwC, the decrease was driven by lower average IPO size as the quarter did not have an IPO with proceeds greater than $500 million. However, year-to-date IPO proceeds of $4.7 billion already exceeds full-year 2012 proceeds by 46%, although year-to-date volume is 32% lower than full-year 2012.
Retail continues to dominate the IPO markets with approximately 67% of the 2013 R&C sector IPOs, consistent with the trend seen in 2012. Strong R&C IPO pricing performance experienced in the first half of the year continued into third quarter 2013, a quarter where a R&C IPO had the largest first day return of any IPO in over three years.