Snapping up a good deal: Why some retail, consumer and leisure acquisitions deliver and some don’t
April 14, 2020
What did our recent survey of 100 RCL executives reveal about creating value beyond the deal in industries that are undergoing once in a generation transformation?
From my dual roles within consumer markets and as a transaction services partner, I know how much mergers and acquisitions (M&A) can tell you about the shifting competitive dynamics within an industry.
Within RCL, many businesses have been looking to M&A to help sustain relevance in a world of changing consumer behaviour and infinite one-click choice. The scale of the shake-up hasn’t only been evident in the number of deals we were seeing, but also the prices being paid and the more unusual nature of many of these tie-ups. Sector boundaries have blurred, and disruptors find themselves disrupted.
Whilst this research was conducted before the COVID-19 outbreak, and a lot of the industry is reacting to the current crisis environment, there may be time in the weeks over summer where they can take a breath and think about future plans and action that future proof their business. As questions are raised around how you digitise your business, or make your supply chains more agile, or your plans around near-shoring and indeed the very future of the high street and big box retailing, these survey findings and resulting practical advice will still be a useful guide.
Drivers and dynamics - RCL transactions often fell into three broad categories:
1/ Moving with your customers
According to our research, customer retention was a strategic priority in 56% of RCL deals, more so than all other industries. The impact of changing buying habits is reflected in acquisitions ranging from home delivery networks to subscription shaving suppliers. But not just acquisitions, we are also seeing more partnerships, even with traditional competitors, that provide modern thinking, new channels to market and more efficient use of fixed costs.
To boost growth, ambitious groups go further by buying creative start-ups and brands built around prominent influencers. Inherent challenges include retaining the people and entrepreneurial culture on which so much of the value of these businesses depends. This can also be a fickle arena. Just as brands cement their presence on one social media channel, for example, their customers and their influencers may well have moved on to the next.
2/ Shake-out on the high street
As the growing number of distressed deals highlights, this can be an unforgiving environment for many high street businesses. However, such transactions can offer a route to long-term survival and success by moving operations onto the acquirers integrated platforms and sharing fixed costs.
3/ Unwanted brands find new homes
A number of consumer groups are divesting operations that no longer figure in their long-term growth plans. Acquisition can often prove to be a boost for the divested operation by providing renewed focus and investment. Indeed, some of these acquired operations are now becoming buyers as they move back onto a growth footing.
Are these deals delivering? The good news from our recent global survey of RCL dealmakers is that 25% of RCL deals achieve significant value, higher than other sectors in our ongoing research.
However, many of the executives in our research acknowledged that they had left a significant amount of value on the table. Culture and talent retention are high on the list of areas they would give greater priority to in their next transaction. As the findings also highlight, value creation can easily be derailed by the lack of a clear and decisive post-deal planning and execution. While this is an issue for all sectors, RCL deals may be especially at risk as the people who need to own and deliver the M&A gains are already under so much pressure within their day-to-day roles.
What then are keys to delivering the full deal potential?
Drawing on the survey findings and my own transaction experience, three priorities stand out:
1/ Build a clear blueprint
Targeting and valuation should reflect the overall strategy for navigating through disruption and building for the future. How can M&A and/or divestment help to realise your business objectives? Does the target fit into this blueprint? Is the price justified by the uplift for your business? Could a collaboration or joint venture deliver the same gains without the costs? Are you putting your customers at the heart of it?
2/ Identify and retain key talent
Our research showed 67% of RCL deals are impacted by cultural issues; this is clearly a problem. Beyond financial incentives, it’s important to think about what motivates the people you need to retain and what kind of environment would help to sustain their value. If you’re buying a trend-setting start-up, for example, the creatives within this business won’t want to be swallowed up in a vast corporate machine.
3/ Make sure you can deliver
People need to own delivery of the key deal value priorities. That might mean taking them away from their existing roles to concentrate on post-deal integration. It might also require someone to take the lead on transformation until it can be embedded into business as usual.
Visit our website to download Creating value beyond the deal: retail, consumer and leisure. For the latest updates on how businesses are responding to the impact of COVID-19 visit our dedicated web pages.