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PwC: Outlook good for deal activity in 2017


A combination of factors, including innovation, cross-border deal interest and the availability of cash reserves, bodes well for deal activity in the retail and consumer markets.

That’s according to a review by PwC, which reported that the retail and consumer deals market ended 2016 with an increase in deal volume and a decline in deal value when compared to 2015.

According to PwC’s Outlook Deal Insights report on the retail and consumer industry, factors expected to drive the retail and consumer deals market in 2017 will likely include:

• Evolving consumer preferences, increased competition for share of consumer discretionary spend, and disruptive market innovators;

• A strong labor market and relatively weak consumer goods prices, which have increased consumers’ relative purchasing power; consumer confidence is now at its highest level since the Great Recession;

• A strong interest in U.S. assets by cross-border dealmakers;

• Challenging comps and declining margins, which are driving executives to focus on lower-cost operating structures that support the changing balance of revenues from stores to online, resulting in the outright sale or closure of brick-and-mortar locations; and

• Sponsors’ appetite for smaller, tuck-in and bolt-on acquisitions in an effort to create larger, more marketable platforms and to avoid high valuations and competitive processes.

However, PwC warned that uncertainty does still exist, which may hamper deal activity. Specifically, it said the impact of the Trump Administration on trade and regulatory matters could result in a more domestic-focused economy and increased scrutiny on international acquirers and importers.

Also, global market volatility has normalized during the end of 2016, but has not disappeared. While markets recovered following the presidential election uncertainties remain surrounding the Fed’s interest rate policy, the European Union and China’s economic recovery. 

In looking at the past year, the report said that food and beverage deals drove the sector for the tenth consecutive year. But there were gains in other sub-sectors, including Internet/e-commerce, which had a record breaking deal with 65 deals valued at $8.1 billion in 2016. This was driven by the most expensive e-commerce deal in U.S. history, Wal-Mart’s acquisition of for $3.3 billion.

Also, specialty retailers continue to consolidate and close brick-and-mortar stores in the wake of declining same-store sales and growing e-commerce. This sub-sector accounted for the third largest share in deal volume (16%) and value (13%) and also experienced the most growth in deal value year-over-year, increasing by 86% from $7.8 billion in 2015 to $14.6 billion in 2016. Bass Pro’s pending acquisition of Cabela's Inc. ranked as the largest deal in this sub-sector.
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