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Retail Acquisitions |
Gordon Brothers Presents at the Retail Industry Leaders Association
What are the key drivers behind the recent boom in retailing M&A?
The past 14 months saw an unprecedented surge in retailing M&A: consolidation plays such as Federated-May and Sears-Kmart; LBOs like Toys R Us, Neiman Marcus and Shopko; and growth and diversification acquisitions such as Children's Place-Disney and Jones Apparel-Barney's. The number of these transactions and dollar amounts involved exceeded the aggregate of the previous five years. The pace is not abating as in a seven-day period in January 2006, three transactions totaling in excess of $22 billion were announced!
The boom in retailing M&A was the topic of a recent Retail Industry Leaders Association panel discussion led by Jeff Bloomberg, Office of the Chairman at Gordon Brothers Group, and Andy Graiser, Co-President of Gordon Brothers Group's real estate subsidiary, DJM Asset Management. The panel, which included Ed Spangler, National Retail Practice Lead at Deloitte Consulting; Betsy Bohlen, a Principal in McKinsey and Company's retail practice; and Tim Carroll, head of William Blair's retail and consumer investment banking practice, examined industry conditions and the confluence of factors that contributed to the rise in retailing M&A activity, including:
• The retailing industry has become even more bi-furcated over the past few years with market leaders thriving while also-rans fall farther behind. With market valuations of laggard performers excessively low and company boards losing patience with their "out of favor" status in today's Sarbanes Oxley environment, retailers are receptive to M&A and privatization - a better environment than the public sector to undertake major business restructuring. For LBO firms, strong retailers have been attractive M&A candidates for their market leadership.
• An abundance of equity capital has brought private equity buyers into the retail sector in droves with what Jeff Bloomberg terms "an almost-record-breaking amount of unspent money" which needed to be deployed. Hedge funds, also flush with capital, moved aggressively into the retail space, as well.
• Debt markets have helped drive growth in retail M&A, demonstrating continued strength and increased liquidity. The senior market almost doubled over a three-year period while secondary, mezzanine and high-yield markets experienced explosive growth as a result of historically low rates and high demand.
• Unlocking real estate values has created opportunities for buyers to enhance returns with the real estate market willing to value rental streams almost twice what the market values operating income. Leveraging real estate opportunities effectively has allowed buyers to reduce purchase prices.
Gordon Brothers Group and DJM Asset Management are proud to have played a part in many recent retailing M&A transactions. We invite you to click here to view the RILA panel discussion, Key Drivers Behind Recent Retailing Acquisitions, available here in PDF form. To arrange a conference call or on-site discussion, please contact Henry Mittelman, Stephen Sigel or Mike Rosenheck. |