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M&A is not just for Christmas

Is there going to be any icing on the cake for UK retailers this Christmas? For many it depends if they are approaching the festive season with a glass half full or a glass half empty. For others it may well be more critical. It may be make or break.

Is there going to be any icing on the cake for UK retailers this Christmas? For many it depends if they are approaching the festive season with a glass half full or a glass half empty. For others it may well be more critical. It may be make or break.

This year UK retailers remain in the middle of very testing times. According to the latest figures from the British Retail Consortium and KPMG, retail sales in October were 0.1% down on the previous October, which was in turn 0.6% down on October 2010. Despite falling numbers of insolvencies overall – by Q3 2012 the number of retail sector insolvencies was up 38% on the first three quarters of 2011.

Duff & Phelps partner Philip Duffy commented: “The current state of the British high street is not a cyclical occurrence.”

At the end of October 2012, the Distressed Retail Property Taskforce, representing key stakeholders in the UK high street, met for the first time to see what could be done. Out of town shopping, rent and rates set in different times and the growth of online shopping are all factors. But there will always be opportunities, and what about M&A as a route to growth?

In the December 2012 issue of Corporate Financier, Andrea Felsted of the Financial Times looks beyond the traditional UK high street at how the innovative retailer or consumer group is using strategic M&A to grow their businesses on the world stage and enter new markets. The likes of Bright Foods from China, which is acquiring developed world brands with zeal, prove it is not a one-way street for such acquisitions.

Back on the UK high street, distress will present opportunities, but there will be other M&A deals for the retail sector and consumer goods domestically. David McCorquodale, cofounder of KPMG’s corporate finance business, and who has just been appointed the firm’s head of retail, told Corporate Financier: “The hot spot for M&A in the retail sector is capability.

The online/digital space continues to be considered by a number of retailers feeling acquisition may be better than organic growth.”

Things may be clearer for retailers once the New Year hangovers have cleared. But through the fog, it is critical that they have a longer-term vision for their businesses. That may need some clever advice, in particular getting retailers sufficient finance so that they can reposition and ensure that Santa’s suppliers are still around next year.

Marc Mullen is editor of Corporate Financier magazine

This article first appeared in Corporate Financier, magazine of the ICAEW Corporate Finance Faculty in December 2012.