What are the prospects for retailers as pandemic-era restrictions ease and alternative spending avenues like services become more readily accessible? It was a question echoing in the minds of many a dealmaker in the wake of Apollo’s $5 billion acquisition of the Michaels Co.s in March. And it may resound even louder now that major cities across the country say goodbye to Covid restrictions.
EY-Parthenon’s answer at today’s Mid-Year M&A Roundtable for members of the media may surprise: Retail and consumer M&A is expected to remain strong. A number of inbound calls to Lindsey Kiely, incoming partner and senior director of EY-Parthenon, are from well-positioned firms preparing to come to market. Think Covid-era winners: home decor companies, pet accessory retailers, active wear brands. Rather than hitting peak earnings from quarantine-induced demand, consumer sector winners can look forward to secular growth driven in part by a resolution of supply chain issues, Kiely says.
“Both retailers and brands are investing in building blocks, supply chains,” Kiely says. “Brands with strong 2020 performance are expecting stronger 2021 performance because of disrupted supply chains, whether its distribution or logistics.
Private equity has already taken note. Hellman & Friedman took Home Group private in May for $2.4 billion.
When it comes to corporate strategy, that focus means tech-focused dealmaking in the months ahead.
“Retailers are using M&A to future-proof their business operations, invest in front- or backend technology, and use technology to create a differentiated experience,” Kiely explains.
The result could be a healthy deal pipeline throughout the year, even as sectors harder hit by the pandemic stay relatively quiet. A bounce-back in fitness center or restaurant deals, for instance, might have to wait.