E-commerce trending: M&A activity in the retail sector

December 16, 2021

E-commerce trending: M&A activity in the retail sector

By Ilan Kotkis, Partner and Head of Corporate, and Libby Morris, Solicitor at Seddons

 

The Office for National Statistics have recently published their figures for mergers and acquisitions (M&A) involving UK companies from July to September 2021. These include transactions that result in a change of ultimate control of the target company and have a value of £1 million or more.

 

July to September 2021 saw the completion of a total of 453 M&A transactions, a figure that is slightly down from the 490 transactions completed in the previous quarter (April to June 2021), but nevertheless still marks a vast increase when compared with the same quarter last year, which saw only 325 deals complete. Whilst the coronavirus (COVID 19) pandemic stifled M&A activity last year and the total number of monthly cross-border and domestic deals fell to a low of 58 in May 2020, it is clear that economic activity has recovered in 2021 and particularly in recent months, as social distancing restrictions were lifted and the vaccination programme was rolled out to the population.

 

One UK sector in which M&A has stood out as particularly buoyant this year is the retail sector, and that is being largely attributed to the rise of e-commerce. Consumer behaviour has changed significantly, and arguably irreversibly, as a result of the pandemic. The lockdown periods over the past 20 months accelerated a huge shift to online retail and triggered a growth of e-commerce M&A.

 

With the government’s recent move to ‘Plan B’ in England, including the re-introduction of compulsory face masks in most indoor public venues and guidance to work from home if possible, it appears that the pandemic is far from over and retailers will need to continue to evaluate how effectively they are adapting to customers’ changing preferences. This is driving deals and investment in the e-commerce and retail technology sectors as M&A offers companies the opportunity to rapidly expand their online offerings.

 

The following are examples of some recent M&A deals in the e-commerce sphere:

  • The online beauty retailer, Cult Beauty, was acquired earlier this year by e-commerce firm The Hut Group (THG) for £275 million. Cult Beauty is the authorised online retailer of around 300 third party brands across skincare, haircare and cosmetics. THG acquired Cult Beauty from private shareholders including majority investor Mark Quinn-Newall (the co-founder of Net-a-Porter) and co-CEO Alexia Inge. THG also owns online beauty retailer Lookfantastic Group, which it acquired in 2010 for £19.4 million, so this further acquisition illustrates THG’s strategy to consolidate their presence in the online sales world.

 

  • Holland & Barrett has acquired an at-home beauty services company called Blow Ltd, for an undisclosed sum, with Blow becoming a subsidiary business of Holland & Barrett International Ltd. The Blow Ltd app offers customers across Greater London, the Home Counties, Birmingham and Manchester offers a range of hair and beauty services from more than 1200 professionals, which are delivered on demand at the customer’s chosen time and place.

 

  • Getir has recently acquired a rival ultrafast delivery app, Weezy, for an undisclosed sum. Weezy was founded in December 2019, operating in London, Manchester, Brighton and Bristol and employing 700 people. Their focus is on delivering everyday items in as little as 10 minutes to customers. Getir was founded in 2015 and launched in the UK in January this year, having first established its ultrafast delivery model in Turkey. The company now operates in 9 countries.

 

  • Online beauty retailer Feelunique was acquired by French cosmetics company Sephora, from Palamon Capital Partners and other shareholders, for £132 million. Feelunique was founded in 2005 and offers customers over 35,000 cosmetic and fragrance products from more than 800 brands. The deal marks Sephora’s motivation to strengthen their digital capabilities in the UK.

 

  • The British premium sportswear brand, Sweaty Betty, was acquired by a US-based company, Wolverine Worldwide, which operates as a footwear wholesaler, for approximately £300 million. Wolverine acquired all the shares of Lady of Leisure InvestCo Limited, the entity that owns the Sweaty Betty brand, from private equity firm L Catterton and other shareholders. Over 80% of the brand’s revenue comes from selling directly to customers through channels, such as online, and the acquisition highlights Wolverine’s aim to focus on digital growth and enhance their growing e-commerce business.

 

  • E-commerce fashion retailer ASOS acquired the brands and stock of Topshop, Topman, Miss Selfridge and HIIT from the administrators of Arcadia Group for £295 million. Boohoo, another online fashion retailer, then acquired the remaining former Arcadia group brands Dorothy Perkins, Wallis and Burton for £25 million. Neither of these deals included any of the brands’ UK stores, instead comprising their e-commerce business, digital assets and intellectual property rights, highlighting the marked shift towards the popularity of online shopping in the current environment.

 

A key question now facing the market is whether the growth of M&A deals in the sector will continue post-COVID. The experience of the pandemic has left many consumers reluctant to return to shopping in large, busy physical retail outlets and so it seems likely that the popularity of e-commerce will continue, resulting in further acquisitions that will be driven by investment in technology. Retailers with a weak online presence may look to enhance their capabilities through an acquisition, and those online-focused businesses that have fared well over the pandemic may turn to M&A to continue their expansion moving forward and may attract interest from both larger businesses and private equity funds.

 

With the sale of Selfridges to the Thai-based family owners of international retail group Central Group reported as due to close before Christmas, M&A activity in the retail market looks only set to continue into 2022.

 

Seddons is a leading law firm based in London’s West End offering a breadth of commercial and private client expertise. Seddons’ Corporate team works with a wide range of clients on a variety of domestic and cross-border M&A transactions. Working with entrepreneurs, private equity firms and companies across a range of industries, the firm advises clients in corporate finance transactions, including public takeovers, equity capital markets and joint ventures. The firm also provides clients with advice on general corporate legal issues.

 

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