Expectations for M&A in the consumer goods and retail sector for the short term are high, according to Mergers & Acquisitions’ Mid-Market Pulse (MMP). Participants gave the sector a three-month Composite score of 74.1, far above the 52.8 for overall M&A. (See related chart).
The challenges retailers face, including striking a balance between e-commerce services and brick-and-mortar stores, are driving consolidation in the sector. For example, discount footwear purveyor DSW Inc. (NYSE: DSW) agreed in February to buy Ebuys Inc. for $62.5 million, in part to expand online.
Some retail activity is being fueled by distressed companies. Sports Authority Inc. filed for bankruptcy protection in early March, following the 2015 filings of American Apparel Inc. (NYSE: APP) and RadioShack.
Other retailers are taking steps to avoid bankruptcy and protect themselves in the event of bankruptcy. Sears Holding Corp. (Nasdaq: SHLD) has announced moves it hopes will enhance liquidity, including taking out a new loan, selling assets and closing stores. Men’s Wearhouse has created holding company Tailored Brands (NYSE: TLRD), which may limit damage if the retailer files for bankruptcy. Mergers & Acquisitions predicts more retail bankruptcies in the months ahead.
The MMP is a forward-looking sentiment indicator, derived from monthly surveys of approximately 250 executives and published in partnership with RSM LLP (formerly McGladrey). Other sectors covered by the MMP include: energy; technology, media & telecommunications (TMT);] financial services, insurance and real estate (FIRE); health care; and manufacturing.