Retail M&A volume drops 32pc with records and discounts

The pharmacy and beauty sector accounted for nearly half the $13.35 billion in retail merger and acquisition (M&A) activity in Australia in the 18 months to the end of 2023, with deals like L’Oreal’s $3.7 billion purchase of Aesop and Kirin’s $1.9 billion buyout of Blackmores among the most significant in advisory firm Grant Thornton’s latest Retail Deal Tracker which analyzed both retailers and consumer-facing brands.

The third-largest deal in the period was Advent International’s $1.7 billion purchase of fashion brand Zimmermanmeaning the top three acquisitions came from overseas buyers even though of 70 per cent of deal volume can be attributed to local players.

Larger deal size from foreign direct investment (FDI) tipped the scales towards cross-border deals in terms of value, worth $7.4 billion versus $5.9 billion in domestic M&A activity.

“Overseas buyers, recognizing the global appeal of these luxury brands, paid record values ​​that Australian capital markets would unlikely match. Australia drew attention on the global stage, with a majority of buyers from the Asia Pacific region, the USA and Canada,” says Grant Thornton financial advisory partner Peter Thornley.

Thornley adds that Australia remains attractive to investors despite a 32 per cent decline in deal volume over the period. At the time of publication, the firm had not yet been able to provide a value comparison against the previous 18-month timeframe.

“There has been consistent but cautious interest in retail and consumer markets from Private Equity investors, driven by notable acquisitions like Aesop and Zimmermann,” Thornley says.

“The rise of tech-enabled businesses in retail is attracting acquisition interest due to their transformative impact.

“Technologies like generative AI and warehouse robotics are reshaping the industry by enhancing consumer connections and efficiency.”

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The top three deals all had high earnings multiples of 20x for Aesop, 14x for Zimmerman and 22.96x for Blackmores, while the largest Australian deal – Woolworths Group’s $586 million acquisition of PETStock – was at a more modest 11x multiple.

The same could be said of the second-largest domestic transaction – BB Retail Capital and Ray Itaoui’s majority investment in Best & Less (ASX BST) for $390 million – for an EBITDA multiple of 4.19x.

The Grant Thornton highlights the contrast of major acquisitions with some Australian assets being purchased at “substantial discounts compared to previous prices”, with the most emblematic being Anchorage Capital Partners snapping up David Jones from South Africa’s Woolworths Holdings for $100 million in cash and $150 million in dividends, when in 2014 the group had been purchased for $2.1 billion.

Other discount deals highlighted were Go-To Skincare co-founders Zoe Foster Blake and co-founder Paul Bates buying back 50.1 per cent of the company from struggling outfit BWX Group which was in receivership, having sold the business initially for $89 million in 2021, and Sweat fitness app founders Kayla Itsines and Tobi Pearce doing something similar with their company after also selling for hundreds of millions in 2021.

After pharmacy and beauty, the leading sectors by deal value were apparel ($2.1 billion), food ($1.6 billion), automotive ($1.2 billion) and pet care ($701 million), although in terms of deal volume the food retail sector led the way by far with 78 transactions – more than a third of the total.

The Dealtracker report points to PAG Capital’s $350 million acquisition of Patties Food and Adamantem Capital’s acquisition of Boost and Betty’s Burgers owner Retail Zoo for a similar sum as the largest transactions in the space.