Report: Retail M&A Up in Q3

U.S. retail and consumer merger & acquisition (M&A) activity during the third quarter of 2013 marked the highest amount of transactions this year, as transaction value rose 112 percent from the prior year quarter, according to PwC's U.S. retail and consumer deals insights Q3 2013 report released today.

In the third quarter of 2013, disclosed deal values greater than $50 million totaled $25.0 billion in the retail and consumer sector, comprised of a total of 38 deals, up 46 percent from Q2 2013 and a 27 percent 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.

In fact, Q3 2013 boasted six of the top 10 corporate deals year-to-date and average deal size for transactions greater than $1 billion was $3.2 billion compared to $1.3 billion in 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 U.S. 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," Sardiga continued.

Private equity (PE) activity in retail remained strong, although PE's relative deal share compared to corporates has been slowing which 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 percent, down from 31 percent in Q2 2013, but up from 20 percent in Q3 2012. PE value as a percentage of total deal value was 35 percent, down from 46 percent in Q2 2013, but up from 20 percent in Q3 2012.

Consistent with prior quarters, the trend towards omnichannel 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 percent from the prior year quarter and down 35 percent from Q2 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 percent, although year-to-date volume is 32 percent lower than full-year 2012.

Retail continues to dominate the IPO markets with approximately 67 percent 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 Q3 2013 – a quarter where a R&C IPO had the largest first day return of any IPO in over three years.

"Looking towards the rest of 2013, there are several highly anticipated R&C IPOs in the pipeline and – taken with the recent outstanding performance of the sector – it will likely encourage other quality companies to file or progress to pricing in the beginning of the fourth quarter, and take advantage of the market window in advance of the holiday shopping season. Also, we expect to see continued cross border M&A activity and industry consolidation, particularly in retail, where activist investors may lead to further carve-out divestitures," added Sardiga.

PwC's U.S. retail and consumer deals insights is a quarterly analysis based on data for transactions with a disclosed deal value greater than $50 million, as provided by Thomson Reuters through September 30, 2013, and supplemented by additional independent research. Information related to previous periods is updated periodically based on new data collected by Thomson Reuters for deals closed during previous periods but not reflected in previous data sets.

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