Consumer slowdown clouds 1Q consumer & retail M&A

Consumer and retail mergers and acquisition volume fell 50% in 1Q over the previous year, as tightening consumer credit and waning confidence looms over the sector, according to a KPMG report on M&A activity.

What they’re saying: Industry watchers are waiting for an opening in the market, as dry powder from private equity and IPO-hungry privates wait on the sidelines.

• “Two quarters is sort of when we expect things to start to pick up, and I think as the M&A activity picks up, you may see the IPO activity pick up as well,” says KPMG partner Frank Petraglia.

Zoom out: Investors will be looking at the direction of interest rates as a signal for M&A activity this year, Petraglia says.

• Both private equity and strategics will also look for “the ability to get comfort in a business model’s ability to perform through a recession, whether it happens or not,” he says, adding this “is going to be important to getting to the table around value,” he says.

Zoom in: While financing all around is tight, strategics have been active this quarter in part because they have their balance sheet to lean on, he says.

• Companies will need to think through their debt covenants and performance in a recessionary environment, he says.
• This can be done by examining their working capital ratios and thinking about what KPIs they want to achieve.