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BFD Expert Voices - Retail Deals

BFD Expert Voices

Deal values and volume dropped sharply in consumer and retail M&A in 2022, according to Refinitiv data.

Why it matters: Tighter financing, rising interest rates and shifting consumer behavior coupled with challenges in supply chain management and inflation made companies in the sector less desirable targets, Kimberly writes.  

By the numbers: Retail deal values fell 48% to $121.6 billion over 2021. 

Diving deeper, deal value in the consumer products and services sector fell 44% while values in consumer staples fell 37%. 

The number of deals was also down, with a 24% dip in the retail space, a 14% decline in consumer products and services, and a 19% fall in consumer staples.

Yes, but: Notably, the discount and department store retailing sector and the household and personal products sector bucked the trend.

Deal values climbed 158% in the discount and department store sector year over year, and increased nearly 56% in the household and personal products sector.

💭 Kim's thought bubble: The value placed on budget-friendly and products-out-of-necessity companies suggests that investors are betting that consumer patterns will shift as the economy turns tides. 

Zoom out: Global deal value and volume were down 38% and 18%, respectively, in 2022 versus 2021, Axios’ Dan Primack writes.

1 big thing: 2022 M&A slump

Illustration of shopping bag in rough waves

Kurly, a South Korean rapid grocery delivery startup, said it has scrapped plans to go public in light of a worsening macroeconomic environment, Kimberly writes.

Why it's the BFD: It's an early sign that 2023 hasn't freshened the bad taste in investors’ mouths for IPOs.

The big picture: The number of U.S. IPOs was down 88% last year from 2021, representing one of the worst years for the space since 2009, Dan writes.

If you're seeking signs of hope, the global picture is a bit stronger, as worldwide proceeds sit at their lowest mark since 2016. 

What they’re saying: “We have decided to postpone listing on the Korea Exchange (KOSPI), considering market sentiment remained weak amid the global market uncertainties,” Kurly told TechCrunch in an emailed statement.

The company said it has “enough cash” to continue its operations.

Context: In South Korea, private companies must complete the IPO process within six months after getting listing approval.

If the company opts to try to go public again, it will have to start the process over.

Flashback: In December 2021, Kurly raised $210 million in pre-IPO funding at a $3.3 billion valuation.

State of play: The food delivery sector has been hurt by the reopening of economies, which have spurred consumers to pay stores a visit rather than get things delivered.

Publicly traded food delivery companies like Deliveroo, Just Eat Takeaway and DoorDash, many of which are vying for on-demand grocery delivery dollars, have seen their shares fall in the past year.

In the U.S., Instacart delayed its IPO plans as did Gopuff, which has cut thousands of workers.

Meanwhile, there was a wave of consolidation in the rapid-delivery sector last year.

Last month, Turkey’s Getir acquired Germany’s Gorillas. Getir has acquired other targets as well, including the U.K.’s Weezy and Spain’s Blok.

German startup Flink, as well as Philadelphia-based Gopuff and Latin America’s Jokr, are among the few stand-alone startups in the once-hot sector.

2. The BFD: Twist in Kurly's plans

Illustration of a grocery bag and food graphic on asphalt.

We know the story: Private equity buys an iconic physical retailer, cuts costs, and either bankrupts the place or leaves it on life support.

But a different narrative is emerging with Barnes & Noble, the U.S. bookseller taken private in 2019 for $683 million by Elliott Management, Dan writes in today's Pro Rata.

Driving the news: B&N is committing to opening more than 30 new physical locations in 2023, following its first year of net store growth in more than a decade.

This includes some openings in locations abandoned last year by Amazon (i.e., the mortal enemy of physical booksellers), when it closed all of its Amazon Books stores.

Behind the scenes: Elliott certainly followed the private equity playbook to some extent, cutting layers of corporate management and related expenses (including office space). But its primary thesis was to let B&N operate more like ... well, more like bookstores.

It was a learning from Elliott's prior takeover of U.K.-based Waterstones, whose CEO James Daunt was also put in charge of B&N (even though the two companies operate independently).

Daunt moved to let local store managers have greater say in what books to sell, ended publisher promotions that often resulted in bad books being displayed in prime locations, and eliminated a lot of the extraneous products that had turned B&N stores into indoor flea markets.

The pandemic obviously crushed B&N's top line in 2020 and part of 2021, but Daunt used shutdowns as an opportunity to refurbish stores, reorganize layouts and reassess stock.

Elliott also made some related acquisitions, most notably buying the assets of bankrupt stationary seller The Paper Store. Expect that book- complementary Paper Store products will make their way into B&N locations, likely supplanting some DVD and CD shelf space.

By the numbers: B&N doesn't report financials, with a spokesperson only saying that it's "experiencing a period of tremendous growth."

For the final full year prior to acquisition, B&N reported $108 million in EBITDA on a $125 million net loss and around $3.6 billion in revenue. A source close to the situation says the bottom line is significantly stronger today than it was then.

The bottom line: Private equity is an unlikely hero for brick-and-mortar retail, let alone its leading bookseller. But that's the current chapter.

3. Elliott spins new tale at B&N

Illustration of a book with the pages made of money. 

Oatly Group, the beverage maker, will divest some of its manufacturing assets in North America to Ya Ya Foods, a Canadian contract manufacturer of aseptic food and beverages, for about $72 million.

Ya Ya Foods will acquire a majority of the assets and take on the property lease of Oatley’s facility in Ogden, Utah. 

Oatly will still make its oat base there, as well as at its plant in Fort Worth, Texas, but it will transfer the goods to Ya Ya to be co-packed.

The company in August said it expected to scale back capital expenditures last year, shifting from adding production as quickly as possible to improving supply chain execution and cash flow management.

🧴 Neutrogena is now offering personalized gummy vitamins.

The beauty company partnered with the vitamin brand Nourished, which makes 3D-printed, customizable gummy supplements.

Customers can use Neutrogena’s app to order tailored supplements that it says best suit their skin.

4. Retail therapy

Illustration of two speech bubbles in the shape of shopping bags.

• Kream, a South Korean sneaker marketplace backed by Altos Ventures and SoftBank Ventures, is in talks to raise $158m in Series C funding at a valuation north of $1b, per a local media report. https://axios.link/3Q9uiPo

• Masonite International (NYSE: DOOR) completed its $375m acquisition of Endura Products, a Colfax, N.C.-based maker of door frames and door system parts. Sellers include Cyprium Partners. www.masonite.com

5. Retail transactions

• Bark, the dog product company, has named Zahir Ibrahim as its new chief financial officer. He joins from Do Good Foods, a startup that turns grocery surplus into animal feed. https://axios.link/3Qd9GG2 

• Zitcha, an Australian retail media platform, has named Nick Hinsley as its chief revenue officer. https://www.zitcha.com/ 

• Burger King franchisee Carrols Restaurant Group said CEO Paulo Pena died unexpectedly on New Year’s Eve. CFO Anthony Hull will step into the role on an interim basis until a successor is found. https://axios.link/3igb5zd

• Terry Novetsky joined the law firm Kramer Levin as a partner in its securitization and structured finance practice. He previously was a partner with King & Spalding. www.kramerlevin.com

6. It's Personnel

💰 Situational awareness: Amazon secured an $8 billion loan from DBS Bank, Mizuho Bank and other lenders for "general corporate purposes," per an SEC filing as the titan braces for market headwinds.

🧟‍♀️ What we're watching: Forever enamored by Guillermo del Toro's universe of creatures, Kim started the director's anthology horror series, "Cabinet of Curiosities," on Netflix.

🙏 Big thanks to editor George Moriarty and copy editor Mickey Meece for today's edits.

January 04, 2023

1 big thing: 2022 M&A slump