Ask Axial: The Outlook for Retail M&A

Welcome back to “Ask Axial,” where we give investors and advisors on Axial the chance to answer questions submitted by middle market CEOs.

This week, we’re looking at what the rest of 2015 has in store for mergers and acquisitions in retail. Here’s the CEO question:

“What’s your outlook for retail M&A for the rest of the year?”

Nate Aslesen, FINNEA Group

In general, the M&A market for middle market companies continues to be quite favorable to sellers. There is a very broad base of acquisition capital available, including cash on the balance sheet of strategic acquirers, equity capital from private equity firms, and family office groups making direct investments. The debt financing market also remains strong and continues to aid M&A activity. Availability of both equity and debt capital, combined with a limited supply of sellers in the market, have helped to drive valuation levels to pre-recession levels for many industries. We expect these trends to continue for the next 12 months, though they could be tempered if the interest rate environment or broader economy changes materially.

Steve Raymond, DAK Group

Our retail clients continue to be encouraged by low interest rates, record stock prices, improving employment numbers, and an abundance of cash in the market. As such many have begun to consider the transaction process, while some are still waiting the for “right time.” This correlates with the fact that the U.S. retail and consumer total M&A transaction value for 2014 was greater than $100 billion for the second year in a row. The overall consumer sentiment continues to rise this year, benefiting from low energy prices. Consumers are remaining cautiously optimistic in 2015, which impacts the key strategic choices retailers make about how to best serve the evolving demographics and consumer preferences.

Richard Baum, Consumer Growth Partners

The overall M&A market, including retail M&A, is hot right now, as it has been all year, and we don’t anticipate that changing for the rest of the year. Given the strong stock market, sellers are able to realize premium valuations for their businesses. Of course, it’s still deal specific, and the better the company, the higher the valuation. Overall, we’re seeing average valuations about 1-2 multiple points higher than they might be in a more normalized environment.

Nate Aslesen is a Director at FINNEA Group, headquartered in Birmingham, MI.

Steve Raymond is a Managing Director at DAK Group and heads the firm’s Philadelphia, PA office.

Richard Baum is the Managing Partner at Consumer Growth Partners, which has offices in White Plains, NY and Kansas City, MO.