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Competition from online retailers pushes traditional firms to acquire disruptive market entrants
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The consumer sector was the winner in terms of deal value in H1 2017, with the retail sub-sector providing a constant flow of deals. The industry is in a state of flux as brick-and-mortar retailers buy faster-growing online rivals, as in PetSmart's purchase of e-commerce rival Chewy.com for US$3.4 billion. At the same time, technology companies have looked to enter the market, complementing their online offerings with physical stores: Amazon's US$13.5 billion acquisition of Whole Foods is a prime example.
Hyper-digitalization: The next frontier
The consumer retail sector is set to continue on its path to hyper-digitalization.
Bill Choe, Partner, White & Case
A recent study by the National Retail Federation forecasts that in 2017 online retail will grow by between 8 and 12 percent, more than double the growth of traditional retailers. This shift by consumers to internet shopping has been the primary rationale for deals such as Unilever's US$1 billion purchase of online razor blade vendor Dollar Shave Club and Walmart's US$3.3 billion acquisition of online store Jet.com.
Technology is a key driver behind this surge in retail deals. "There are a lot of larger, older companies with fixed sites that don't look as good as they looked a few years ago," says White & Case partner Morton Pierce. "That will generate consolidation as well as acquisitions involving disruptive new entrants."
And according to White & Case partner Bill Choe, the disruption from tech firms is only just beginning. "The consumer retail sector is set to continue on its path to hyper-digitalization—think hyper-local geo-targeting for advertising and product placement, and ubiquitous use of Big Data analytics for personalized marketing," Choe says.
Physical stores hold their value
Amazon's US$13.5 billion purchase of grocer Whole Foods, however, suggests that there still is value in physical stores. The deal shows the importance of physical stores for large retailers looking at ways to integrate online and in-store consumer experiences, rather than viewing the two as separate sales channels.
"Prices for physical retailers will look attractive," says Pierce, "and there will be private equity firms who take the view that they can buy these assets at attractive prices, maintain cash flow and control expenses."
Top consumer deals H1 2017
1. British American Tobacco Plc bought Reynolds American Inc. (57.83 percent stake) for US$60.7 billion
2. Reckitt Benckiser Group Plc bought Mead Johnson & Company for US$17.1 billion
3. Amazon.com, Inc. agreed to buy Whole Foods Market, Inc. for US$13.5 billion
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