Retail Mergers and Acquisitions Look Promising, Says Acuris
The total value of U.S. retail deals last year reached $36 billion—roughly three times the $13.9 billion of in 2019. This was despite the pandemic, or perhaps in part because of it
This growth came after year-over-year declines in both 2018 and 2019. This information comes from the M&A insights tool Mergermarket, a product of financial news and data company Acuris. However, that’s no the whole story for the retail sector’s 2020 because a deal is still considered as an acquisition no matter what sort of business a company is purchasing—a healthy one, or one out of bankruptcy.
The latter situation was the case for a number of retailers that the pandemic either were damaged or knocked out.
Brooks Brothers – Oldest Retail Company
Authentic Brands Group and Sparc Group (a venture backed by Simon Property Group) completed their $325 million acquisition of the 200-year-old Brooks Brothers. Brooks Brothers is the oldest clothing retailer in the United States. With the deal, Sparc—the dedicated operating company for ABG-owned brands including Aéropostale, Nautica and Lucky Brand— will take on the role of core licensee for Brooks Brothers. Sparc will manage all of Brooks Brothers’ operations, including retail, wholesale and e-commerce. Reports say that at least 125 Brooks Brothers stores will stay open as part of the agreement.
ABG also purchased the company’s intellectual property and will oversee all licensing partnerships, new business, and brand development.
Brooks Brothers has more than 500 freestanding stores and shop-in-shops. It sells in department stores, specialty channels and outlets in 45 countries worldwide.
A joint venture between mall owners Simon Property Group and Brookfield Property Partners acquired JCPenney's retail and operating assets. This report is based on bankruptcy court pleadings. The deal will preserve JCPenney's stores and more than 70,000 jobs. Simon and Brookfield will pay roughly $300 million and take on about $500 million in debt.
Wells Fargo said it would contribute an additional $2 billion in financing, and a group of JCPenney's lenders will also take ownership of some stores and the company's distribution centers.
Observers said that three separate bidders were competing to acquire JCPenney out of bankruptcy. They are private-equity firm Sycamore Partners, Saks Fifth Avenue owner Hudson's Bay, and a joint bid of Simon and Brookfield.
Speedway and 7-11 to have 10,000 Retail Locations
But not all acquisitions in retail were the product of a bankruptcy filing. There were also multibillion-dollar transactions such as 7-Eleven’s $21 billion purchase of convenience chain Speedway from oil and gas company Marathon. 7-Eleven acquired about 3,900 Speedway stores and gas stations located in 35 states.
7-Eleven currently operates about 10,000 stores in the U.S.. The added Speedway locations will bring the total to 14,000 locations.
“This acquisition is the largest in our company's history and will allow us to continue to grow and diversify our presence in the U.S., particularly in the Midwest and East Coast," said Joe DePinto, president and CEO of Dallas-based 7-Eleven. "By adding these quality locations to our portfolio, 7-Eleven will have the opportunity to bring convenience to more customers than ever before.”
Speedway has an annual pre-synergy run-rate EBITDA of approximately $1.5 billion prior to the acquisition. 7-Eleven said it expects to achieve $475 million to $575 million of run-rate synergies through the third year following closing. After the deal closes, 7–Eleven will be even better positioned to continue to pursue profitable growth opportunities, the retailer said.
Streamlining Will Drive M&A in 2021
Observers say that companies streamlining their portfolios even as they acquire new additions drives some of the retail activity. In other cases, M&A categories considered vital to future growth such as healthcare retail will drive activity according to experts.
Historically, as the retail industry grew more competitive, companies needed to consolidate to strength their positions.
Experts say that they think consolidation will increase in the latter half of 2021, after the pandemic interrupted a number of deals in 2020.
However, the purchase of distressed assets will probably remain a theme in 2021 after a booming 2020. But observers expect retail bankruptcies overall to decline.
The total M&A value in the retail sector reached $40.7 billion in the third quarter—the highest quarterly total since the second quarter of 2017. However, volume did not increase: there were 115 transactions recorded in the same quarter. While this number was higher than the 98 deals recorded in Q2, the Q3 total represents the second lowest quarterly volume since Q1 2009.