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PE-led M&A in consumer and retail to rebound

Illustration of a shopping bag full of checks.

Illustration: Gabriella Turrisi/Axios

Private equity investors may see more opportunities to scoop up undervalued retail assets in a down environment, but that activity may be reserved for particular areas, KPMG partner Kevin Martin tells Axios.

Why it matters: Despite an estimated $1.96 trillion in global private equity dry powder, consumer and retail PE activity was muted last year.

By the numbers: Last year, PE deal volume fell to 480 transactions from 706 the year before, representing a 32% drop, according to a KPMG report on consumer and retail M&A.

  • PE deal value fell 59% to $34.8 billion in 2022 from the year earlier.
  • Around 80% of PE firms active in the C&R say that they expect a decline in deal activity over the next 12 months, according to the report.

What they’re saying: Sponsor-led deal activity will ramp up once lenders “feel good” about the macroeconomic environment, Martin says.

  • “As one of my private equity friends said, ‘the lenders sort of had alligator arms,’” he quips.
  • Once lenders "start seeing some of these early wins, that's when it's going to really open up,” he says.
  • Last year, fundraising among PE firms fell to $784.1 billion from $918.5 billion a year earlier, according to Preqin.

Yes, but: Martin sees some pockets opening up around distressed M&A.

  • “Some large private equity firms... are certainly looking for valuations that are lower,” he says.
  • They will be looking for bargain-priced assets ripe for a turnaround, he adds.

What we’re watching: Industry insiders say there’s plenty of deal demand, with many PE firms prepping portfolio companies to come to market later this year.

  • “I believe that when the dam breaks, it’s going to be pretty ferocious,” Martin says. “The question, again, is when?”
  • Martin predicts a spike in corporate divestitures in 2023 as strategics shore up their portfolios to ensure they coincide with their long-term strategies.
  • Those underperforming assets — ideal targets for private equity — will likely hit the auction block, he says.
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