New York -- A report released Thursday by PwC found that U.S. retail and consumer merger & acquisition activity in 2012 drove both deal volume and value up from the prior year as the number of larger deals over $1 billion almost doubled.
According to PwC’s U.S. retail and consumer M&A insights “2012 Year in Review and 2013 Outlook” report, private equity activity in the retail sector comprised nearly 40% of deal volume and 55% of deal value, and IPO volume increased 38%.
“While the prolonged negotiations on the fiscal cliff dampened the positive momentum heading into 2013, consumer sentiment improved significantly, and we expect retail and consumer companies to continue to use acquisitions to drive growth and adapt to the latest consumer trends,” said Leanne Sardiga, partner and PwC’s US retail & consumer leader, deals practice. “We expect several factors to impact the R&C deal landscape in 2013, including continued cross border activity, additional investment by PE investors in retail, and companies continuing to expand omni-channel capabilities.”
According to PwC, there were a total of 130 deals in the retail and consumer sector with values greater than $50 million in all of 2012, representing $91.2 billion, a 20% increase in volume and doubling the value seen in 2011. During fourth quarter 2012, deal volume and value increased 21% and 100%, respectively, to 41 deals at a total value of $26.2 billion, from fourth quarter 2011, which PwC attributes to sellers pushing to close deals before year end.
Cross-border deal activity has remained consistent with prior year levels, representing 40% of deal volume and 50% of deal value in 2012. Asia was a leading area for U.S. investment abroad as U.S. companies continue to seek out opportunities to take advantage of the expected growth in consumer spending across the Asian economies, according to PwC.
The report found that the retail and consumer sector continues to be largely driven by food and beverage transactions both in terms of deal volume and deal value. While the number of food and beverage deals decreased from 2011, total transaction value returned to historical levels seen in 2009 and 2010 from a five-year low of $7 billion in 2011 to $36 billion in 2012 – a 414% increase. Average deal size in food and beverage also bounced back and grew from $107 million in 2011 to $617 million in 2012 as a result of eight food and beverage mega transactions and corporate buyers’ decision to more aggressively grow through acquisition.
Specialty retail, after several years of very little M&A activity, saw an increase in mid-market acquisitions in 2012 with 18 deals (with values greater than $50 million) compared with less than four deals in 2011 and 2010. Also, the value of billion dollar-plus deals more than doubled over the same periods – resulting in a banner year in terms of transaction value with approximately $14 billion in disclosed deals.
Private equity continued to play a pivotal role in the apparel, footwear and accessories, and restaurants subsectors, accounting for slightly less than half of all transaction volume and nearly 80% of transactions valued at more than $1 billion. Restaurant deals were also heavily dominated by financial buyers and PwC said it expects that private equity will continue to be active in the restaurant subsector as they see opportunities to improve operating efficiencies during the economic downturn and position for growth.
Grocery, drug, discount, and mass retailer deal volume and value saw better than average growth during the year as well. Deal volume and value for deals over $50 million more than doubled over the prior year, with the volume increase driven by middle market deals (greater than $500 million) and growth in deal value due to the several large deals.
Retail and consumer IPO volume during 2012 increased 38% compared with 2011, although IPO proceeds decreased 28% – mainly a result of two large IPOs in 2011 that raised proceeds of $2.2 billion.
Retail IPOs drove the volume growth in the R&C sector during 2012 as they doubled compared to 2011, raising $1.8 billion.