Retail CFOs expect strategic buyers to be more active than financial buyers.
A survey by accounting firm BDO USA LLP checked in with 100 retail chief financial officers and found that 59 percent of them expect M&A activity in the retail sector to increase this year. Further, 16 percent of those surveyed said “M&A is the growth tactic they are most heavily focused on for 2015.” Most of the merger activity, according to 73 percent of the respondents, is expected to occur in the U.S.
Natalie Kotlyar, a BDO partner who heads the Northeast retail and consumer products industry group, said in a telephone interview, “It is very difficult, and challenging, to grow the company simply by organic growth in today’s marketplace. They are turning to M&A to take more market share.”
Related Articles
Kotlyar said acquisition targets are either to complement what a company already has, increase geographic presence in another location or country, or add a category different from what the company already is in.
You May Also Like
In the apparel and retail space, that could mean an apparel firm acquiring a successful footwear brand that already has a successful following — a move that’s easier than trying to develop a new line and then having to grow that organically.
As for capital structure, Kotlyar said many firms have “already accumulated cash….Others will have to raise funds, and some will do a combination of both. Still, others may raise cash in anticipation of a future purchase so that if a good deal comes along, there won’t be any need to any financing [later on].”
To be sure, whether those contemplated deals will actually get done remain to be seen. “All the chess pieces still have to come together. They first have to have a good deal in place, then have adequate funding to complete it,” she said.
In a separate survey from HSBC North America, called “Hidden Impact: The Vital Role of Mid-Market Enterprises” and authored by Oxford Economics, the study found that at 55,700, the U.S. has the largest concentration of middle market companies, and generates the highest amount of economic output among such companies in major global markets.
U.S. middle-market companies directly contribute $1.7 trillion to the U.S. economy, or 13 percent of output, and support 16.5 million American jobs, or close to 13 percent of employment. The study defines middle-market firms as having annual volume of $50 million to $500 million.
Derrick Ragland, executive vice president and head of U.S. Middle Market Corporate Banking at HSBC Bank USA, N.A., calls middle market firms the “middle child” of the global economy because many are too small to have influence and others are too big to benefit from the interventions, incentives and support offered to smaller businesses.
By segment, more than one-third of the American middle market firms are in the wholesale and retail sectors. “Wholesale and retail, with an estimated 1.8 trillion in sales, is the largest contributor to gross value added to the economy,” Ragland said in a telephone interview.