Why the Time Is Right to Sell a Mid-Market Apparel Company

7/23/2014
For middle-market business owners in the retail apparel sector (small chain retailers, manufacturers, technology and supply chain service providers) it may be an opportune time to pursue the attention of investors seeking M&A. Today, founders of successfully managed, middle market companies are in the driver’s seat, with multiple opportunities to monetize their life’s work.

Here’s what we know. There is more money on the sidelines than ever before, both in the hands of corporations and institutional investors, and more dollars chasing fewer goods makes for a seller’s market. Corporations and private equity groups are both hungry for good businesses. Private equity is also investing at unprecedented levels. In addition, demand is trumping supply for middle-market businesses, and that puts business owners in a position to get top dollar for their companies today.

In addition, market conditions and industry trends indicate that the environment for retail M&A is becoming more favorable. And since it can take nine months to a year or more to sell a business, companies in the retail sector should weigh their options now, before it’s too late.  As the economy rebounds, and industry numbers trend upward, that’s typically the best time to sell. Sellers who try to time the market could end up waiting for the next cycle. Plus by 2020, we will see a return to a buyer’s market when aging baby boomers seek to sell their businesses and retire. Now may be the perfect time to get in front of that curve.

Aside from it being a sellers market, why should business owners in the retail apparel sector consider M&A options now?

While retail numbers haven’t rebounded as quickly as those in other industries, there are several recent trends that are prompting the interest of investors in the sector today. These trends include:

1. Renewed willingness of consumers to spend money. According to economic data, consumer confidence has rebounded by more than 30 percent since 2010, illustrating that consumers are willing to save less and spend more. Investors look for companies with profits that are trending upward.

2. Expanded opportunities in global markets. In May, PricewaterhouseCoopers (PwC) reported that Q1 2014 retail and consumer M&A activity across the border increased on both a year-over-year and sequential basis. Cross border activity accounted for 59 percent of total deal volume in Q1 2014 as compared to the 51 percent average experienced in the past eight quarters.

3. Big retailer’s appetite for M&A. Many retailers struggle to grow organically, which often means they will seek growth through acquisition. We’ve seen this occur among some high-profile retailers who have gone after direct competitors to meet expansion goals. The $1.8 billion Men's Wearhouse acquisition of Jos. A Bank this past March is a prime example.

4. Transition to omnichannel retailing. Today’s consumers expect to complete retail transactions in a variety of ways: from traditional storefronts, outlet malls and online stores, to emerging mobile and social transaction technologies. Many retailers don’t have the know-how or funding to develop or update channels. Such changes are necessary in an efficient and secure omnichannel plan. Retailers would be wise to seek out investors who can facilitate financing and expertise in today’s omnichannel environment.

Investors are starving to acquire and invest in solid middle-market businesses. As M&A in the retail niche heats up, owners of successful, middle-market retail apparel companies will be in a position to realize financial and strategic benefits. Sellers can expect to see rising valuations if they choose to sell, and owners who need capital to invest in growth will have more offers to choose from. The time to consider selling is now.


Shane Mahmood is vice president of sales operations for Allegiance Capital Corporation, a premier private investment bank and middle-market M&A firm built with the same entrepreneurial tenacity their clients unleashed to create their own successful businesses. He is reachable at [email protected]
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