Retail Industry Global Report — 2010 - Ascendant Capital Advisors

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2010 witnesses contraction in retail M&A activity There were 1,409 transactions valued at $17.1 billion USD in the last twelve months (ended September 2010) for the retail sector, representing a downside of 33.6 percent in terms of transaction value ($25.7 billion USD during the previous 12-month period with 1,473 deals). Dollar volume in this period included two major transactions (Kohlberg Kravis Roberts/Pets at Home and Lotte Shopping Co/GS Square and GS Mart), which represented $2.7 billion USD or nearly 15.8 percent of total dollar volume. During the previous period, the largest transaction was the acquisition of Next Rx LLC by Express Scripts for $3.5 billion USD. In terms of business segments, specialty and distributors accounted for the highest in terms of value at nearly 56 percent of total dollar volume for the period. In terms of geography, the United Kingdom had the highest transaction value of $3.9 billion USD with a total of 161 transactions over the last 12 months. The United States came in second with a value of $3.4 billion USD through 370 transactions. Among other regions, Europe was the clear leader at $7.3 billion USD with 688 transactions. Going forward, large grocers and mass merchants will start looking to invest in emerging markets, especially in the BRIC 1 region, where valuations are low. Also, the retail sector is highly fragmented; hence, consolidation through inorganic growth by foreign players will drive the M&A segment. Albeit, considering the dim retail industry outlook, retail companies will continue to find it hard to raise the funds to finance transactions. 1 Brazil, Russia, India and China countries M&A Activities at a Glance 2010 V. 2009 IMAP’s Retail Industry Global Report — 2010: Page 2 LTM ended 3Q 2009 LTM ended 3Q 2010 Transaction value (USD billion) 25.7 17.1 Top 5 transactions 32.4% 27.3% Segment Analysis Segment No. of transactions Value (USD bn) Specialty Stores 299 5.1 Distributors 692 4.5 Department Stores 50 2.4 General Merchandise Stores 28 1.6 Home Furnishing Retail 38 1.1 Internet Retail 124 0.8 Top 5 regions No. of transactions Value (USD bn) Europe 688 7.3 North America 412 4.1 Asia Pacific 245 4.1 Latin America 36 1.4 Middle East 13 0.2 Top 5 countries No. of transactions Value (USD mn) United Kingdom 161 3.9 United States 370 3.4 South Korea 3 1.2 France 87 1.1 China 66 0.9 Source: Capital IQ Database, IMAP
Global recession hit retail hard The recessionary period has been a chaotic period for the global retail industry. Factors which affect retail sales such as people’s purchasing ability (disposable income) and willingness to spend (consumer confidence) were at rock bottom during this period. Eventually, global retail sales declined 3.7 percent in 2009 to $13.9 trillion USD 1 . While sales for 2009 were low, it is worth noting that sales of the global retail industry have doubled since 2003. Along with sales decline, profitability for most retailers shrunk due to heavy promotional expenses incurred in 2009. Profitability of the 200 largest retailers in the world fell to 2.4–4.1 percent during fiscal ended 2009, wherein 1 Economist Intelligence Unit (EIU) IMAP’s Retail Industry Global Report 2010: Page 3 more than 30 retailers reported operating losses 2 . This trend affected almost every retail category and geographical area except Africa and the Middle East where retailers reported an increase in profitability. With the worst behind, 2010 began with guarded optimism following signs of a recovery in the global retail sector during the second half of 2009. It is certain that a recovery is on the way; however, the worst-ever recession has changed the industry’s dynamics with the changing nature of consumers and their shopping habits. 2 Bloomberg Change in consumer preference fuels online retail Even as sales through traditional channels declined, online retail formats provided some respite for retailers as global online retail sales grew by 14.5 percent in 2009 to reach $348.6 billion USD 1 . Electronics was the largest segment in global online retail sales, contributing around 22.6 percent. While the online retail sales sector continues to outperform, its magnitude remains small with 2.5 percent of total global retail sales. On an average basis, globally, online sales account for 6.6 percent of total sales for the top 100 retailers in 2009 2 . The US remains the biggest market for online retail with 37.2 percent market share. Total spending reached $129.8 billion USD in 2009 3 , marginally lower than $130.1 billion USD in 2008. A high level of product differentiation together with low fixed costs and dynamic market revenue growth is seen in the US market. However, it also creates competition in the market with a large number of active players and the absence of consumer switching costs. The online channel is outperforming wider retail as it has a number of counter-recessionary characteristics. The online channel offers considerable benefits to retailers. Relatively low operating costs (compared to an equivalent store network) 1 Data monitor, July 2010. The online retail market consists of the total revenues generated through the sale of retail goods via online channels, valued at retail selling price. 2 Forrester Research, January 2010 3 The US Department of Commerce Businesses such as Dwell Retail in the UK have experienced dramatic growth in the largely traditional home furnishing sector, as a result of their multi-channel offer to consumers attracted by the ability to ‘try in store – buy online’ large item furniture with next day and timed delivery. Marc Gillespie, Head of IMAP’s Retail Industry Group, IMAP UK (Clearwater Corporate Finance) Traditional vs. Online Retail Industry Growth 25% 20% 15% 10% 5% 0% -5% 22.7% 22.1% 7.2% 10.9% 9.4% 12.4% 14.5% 2006 2007 2008 2009 allows them to pass benefits to customers in terms of low cost, and can be operated 24x7. The rise in Internet penetration and a change in view of consumer mindsets is happening as more consumers feel more comfortable purchasing and using their credit cards online. In summary, the Internet has evolved into an important retail channel. An increase in tech-savvy consumers, an increase in Internet access and growing confidence in payment security and privacy have advanced this retail channel. Convenience, value and selection — major catalyst for online channel uptake The online retail channel has consistently outperformed because most consumers are valuing low and transparent prices, convenience, and comprehensive assortment of goods and services. As per the survey 4 conducted in North America which is the largest market for online retail, 67 percent of online buyers find the products online that they cannot find in stores easily; 65 percent of US-based Web buyers buy the products online as they save time by shopping online; and 63 percent of Web buyers find better deals online. 4 North American Technographics Retail Online Survey, Q3 2009 -3.7% Traditional Retail Growth Online Retail Growth Source: EIU, Datamonitor, IMAP
Page 1 and 2: An IMAP RETAIL Report Retail Indust
Page 3: Contents R E T A I L I N D U S T R
Page 7 and 8: Transformation in online retail Pos
Page 9 and 10: Social media takes retailers to soc
Page 11 and 12: HOT Investment Opportunities Change
Page 13 and 14: Appendix A: Global overview of reta
Page 15 and 16: Thumbnail summaries of top 50 retai
Page 17 and 18: 12: Rewe-Zentral AG. (Germany)** Br
Page 19 and 20: 23: Centres distribeutrs E. Leclerc
Page 21 and 22: 34: Casino Guichard-Perrachon S.A.
Page 23 and 24: 45: Migros-Genossenschafts Bund. (S
Page 25 and 26: Thumbnail summaries of retail activ
Page 27 and 28: 12: The Netherlands Online Penetrat
Page 29 and 30: Summary of transactions 1 in the re
Page 31 and 32: 6: Dufry AG / Dufry South America A
Page 33 and 34: Appendix D: Niche focus areas M-Com
Page 35 and 36: Cross-border M&A requires local kno

Retail Industry Global Report — 2010 - Ascendant Capital Advisors

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