KPMG – M&A Trends in Cunsumer and Retail

The consumer and retail sector has seen a decrease in mergers and acquisitions (M&A) activity due to an uncertain economy. Consumers are facing challenges such as inflationary pricing pressure and high interest rates, which has led to a decrease in spending and a reliance on savings to fund purchases. Businesses are also feeling the pressure of high interest rates, which has deterred potential buyers and sellers. Additionally, the ongoing situation in the Middle East has further compounded the uncertain outlook for the future. Concerns over interest rates and declining consumer confidence have held back dealmaking in the sector. The cost of capital has significantly increased, leading to a shift in the risk/reward profile. However, many business buyers and sellers have not fully acknowledged the decrease in valuations. The largest deal in the quarter was the purchase of Subway by private equity firm Roark Capital Group for $9.55 billion. This acquisition leverages Roark's expertise in franchising and restaurant businesses. Another significant deal was the strategic acquisition of Capri Holdings Limited by Tapestry for $8.5 billion, creating a US luxury powerhouse and providing cost savings and growth opportunities. In Q3'23, there was also a trend of companies choosing to go private as an alternative to deteriorating public market valuations. Chico's FAS entered a definitive agreement to be acquired by private equity firm Sycamore Partners for $1 billion, with a 65 percent premium to the previous day's closing price. With interest rates on the rise and limited lending opportunities, the outlook for the sector remains challenging. Analysts believe that most firms are waiting for better valuations, and a bottom in the market is expected in 2024.