Slower Q2 M&A Activity for Retail and Consumer Sector

The U.S. retail and consumer (R&C) sector experienced a slower second quarter in 2015 for merger & acquisition (M&A) activity, but the second half of the year should see more action, according to PwC’s U.S. retail and consumer deals insights report released this week. The activity that did take place was driven by four megadeals (deals with a value of more than $1 billion), the report found.

Key highlights of M&A activity in Q2 included:

• Thirty-one deals (with values more than $50 million) were announced for the quarter, down 24 percent from Q1 of this year and down 42 percent from Q2 of 2014.
• Total transaction value for Q2 2015, $27.3 billion, was down 66 percent from Q1 2015, which included the largest megadeal seen in the sector for several years (the $53.1 billion Heinz/Kraft merger), and down 28 percent from Q2 2014.
• In a sign of convergence among the retail and health industries, two of the megadeals in Q2 were from CVS Health, which agreed to acquire Omnicare Inc. for $12.7 billion and also the pharmacy and clinic businesses of Target Corp. for $1.9 billion.

“While consumer sentiment ended on a high note during the second quarter, mixed economic activity resulted in sluggish retail sales growth and fewer retail and consumer deals,” noted Leanne Sardiga, partner and PwC’s U.S. retail & consumer deals leader. “We believe that during the second half of the year, retail and consumer companies will continue to reposition themselves around the megatrends and increasingly engage in deals for three reasons: to drive growth, reposition their businesses, and better compete within the sector.”

IPO activity in the retail and consumer sector outpaced the prior three quarters in both volume and value, with eight IPOs accumulating $1.7 billion. Although IPO proceeds rebounded, the sector experienced shrinkage in year-over-year activity, with a 36 percent decrease in proceeds and 20 percent decrease in volume from Q2 2014. Meanwhile, average R&C IPO proceeds in Q2 2015 reached $214 million, the highest the sector has seen since Q2 2014.

Private equity (PE) continues to remain active in the sector, around both cash optimization investment opportunities as well as using capital to fuel expanded growth that includes adding store locations, and extending brands into other product categories and into new geographic markets, often overseas, according to the report.

In the latest quarter, PE volume as a percentage of total deal volume was 26 percent, up from 24 percent in Q1 2015, and up from 25 percent in Q2 2014. PE value as a percentage of total deal value was 20 percent, down from 69 percent in Q1 2015, and up from 15 percent in Q2 2014.

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.