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Healthy spending signals a strong 2024 M&A market

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Illustration: Natalie Peeples/Axios

The consumer and retail sector is on good post-holiday footing after tempering inflation and strong income growth buoyed consumer spending.

Why it matters: The healthy spending numbers indicate a sunny M&A market in 2024.

Catch up fast: Retail sales between Nov. 1 and Dec. 24 increased 3.1% over 2022, according to a Mastercard Spending Pulse report, which takes into account online and in-store sales. The numbers aren't adjusted for inflation.

  • Spending increased across the apparel, electronics and grocery categories, but the highest jump was in restaurants, with a 7.8% increase.

The big picture: Consumer and retail M&A activity fell from the previous year, per the London Stock Exchange Group.

  • Deal volume and values in the consumer staples and retail sectors declined. Consumer products and services volume fell as well, down 10.7%, but values were up 2.7%.

Between the lines: Around two-thirds of dealmakers say that they're expecting M&A activity to grow beyond what was seen in 2023, according to a KPMG M&A survey.

  • About 7 in 10 say they're in the process of closing a deal right now.
  • Around 76% of dealmakers say they're expecting to ink at least one deal this year.

State of play: Dealmakers say activity is concentrated in selective areas with high-quality assets. The beauty space in particular has seen several deals led by large strategics.

Meanwhile, the oversaturated e-commerce sector is seeing once high-flying unicorns struggle or shutter.

  • Last week, online retailer Zulily, which was at one point valued at $9 billion, said it was shutting down.
  • Delivery Hero, a Berlin, Germany-based online food delivery company, is planning to shut down its global tech hubs in Turkey and Taiwan and has reduced some of its corporate workforce.
  • "In the consumer [sector], we're seeing a lot of people getting dinged on performance," says Michael Mufson, managing partner at Philadelphia-based investment bank Mufson Howe Hunter.
  • "You looked at the e-commerce side of things…you're smart enough to sell 18 months ago in the midst of COVID. Today, it's a very difficult one," he says.

Yes but: "There's so much capital that people are rationalizing, and deals are happening," Mufson says.

Of note: Online luxury players have not been immune to post-pandemic consumer spending shifts.

  • Farfetch inked a take-private rescue deal with Coupang, while Apax Partners-backed Matchesfashion agreed to be acquired for about £52 million by U.K.-based Frasers Group.
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