Retail dealmakers discuss M&A's future
At a retail roundtable breakfast before the BFD Summit, Guggenheim Securities' Adam Rifkin kicked off a conversation on M&A by describing the projections for next year as half doom and half gloom.
Why it matters: M&A, which dropped 55% in value over three quarters globally in 2022, per Refinitiv data, was top of mind for the investment bankers, VCs, lawyers, executives and founders attendees.
Details: Rifkin elaborated, stating management teams don't currently know what the future looks like for growth or what is going to happen to the consumer and shopping patterns, adding "that sort of triggers down."
- "And so it's causing a huge problem from ... what you do from a valuation standpoint. We're in this weird holding pattern right now," Rifkin says, compounded by the lack of an "ideal market to use as the offsetting monetization alternative."
The big picture: Rifkin thinks that as we head into 2023, given "the winners are continuing to win in Q4 and Q1," we will likely get a sense of where valuations are and that will trigger M&A activity and IPO markets.
Flashback: Private equity accounted for a large share of retail M&A historically and "that is completely turned off," said Solomon Partners' Cathy Leonhardt.
Yes, but: "(DTC) was the go-to channel. We saw enormous amount of companies go public in 2021 and the air came out of the tire," she said.
- We're going to get back to fundamentals, Leonhardt says, with more alignment between buyers and sellers on valuation and that will create an opportunity for dealmaking.
The intrigue: "There are a lot of good strategics out there, they have money, they're looking for brands (and) they're looking for strategic assets that are going to give them some risk moderation," said MMG Advisors' Andy Postal, noting that everybody's supply chain is wrong.
- "They spent 30-some-odd years building long supply chains using cheap labor and that's really not what the market's demanding," he argued.
- Consolidation will continue, but it will be vertical rather than horizontal, pointing to Inditex as an example, Postal said.
- Fitch Rating's David Silverman cited Walmart's acquisition of Jet.com as an example, to buttress Postal's point, and then pointed out that apparel brand American Eagle, another example, is becoming more a supply chain company rather than a retailer.