By Stephen Wyss
As retailers eye avenues for growth in 2012, mergers and acquisitions (M&A) will be a key area of interest and activity.
Our recent survey of 100 retail CFOs found that 52% believe most M&A activity in 2012 will be on the strategic side. Opportunities for strategic buyouts — both domestic and international — are ripe, and with many retailers reporting better-than-expected 2011 holiday figures in the U.S. market, some companies may be well-positioned to move forward with acquisitions.
Many domestic retailers recognize that they are overstored in the United States, and the international market presents the best opportunity for growth. As a result, we expect to see a continued focus on international expansion, particularly in the Asian markets, with U.S.-based companies pursuing deal opportunities both foreign and domestic, and foreign companies looking to take advantage of opportunities in the U.S. market. Companies that hold the potential to increase consumer loyalty, improve or establish efficient distribution channels, and provide enhanced global reach will be vied-for acquisition targets.
Strength of brand: Strength of brand will be especially important to M&A deals this year, particularly for strategic buyers. While we saw a lot of private equity buyouts in 2011, and there are indicators that private equity will continue to be very interested in the retail sector, we anticipate an uptick in strategic deals in 2012 as strong retailers look for opportunities to expand market share and enter into new markets.
An ideal target will have an enthusiastic and loyal consumer following and present an opportunity for the acquirer to integrate and synergize existing brands with those that are acquired. While a strong brand identity can pose challenges for integration, retailers recognize the value of a loyal customer base in an economy where consumers are increasingly forced to make choices between brands and limit their spending.
With the U.S. mar