The retail sector has welcomed the news that non-essential shops could re-open at the beginning of June. As the shutters come up many will be facing a battle for survival with job losses and shop closures expected to be announced.

But in among the darkness is a ray of light for the sector. There's the possibility that some thriving retailers will be looking to throw out a lifeline by acquiring brands threatened by the pandemic.

Why might a thriving retailer consider acquisitions at the current time?

In an already slack M&A market in the retail sector, with external and internal capital constrained, of course, Covid offers the thriving, well capitalised and perhaps digitally mobilised retailer a once in a generation window of investment opportunity.

Anecdotally, I am hearing that well known, some even now profitable, retail brands have changed hands in recent weeks for as low as less than one times EBITDA.  The level of interest for once burnished brands has dropped to just a handful of bidders.  It’s a buyer's market.  But, let's be clear, what is on the market is on the market because it has to be on the market.

Why most will not

Stand back from this a second, would you buy a car at the moment?  Not your principal family car… but a second car?  Really?  What about a new house? Not your principal family house but a second home?  Oh I get it, you've got no debt! Wow.  Lucky you.  You're sitting on a large cash pile, which is not going to give you a yield and the new house backs on to your current one, gives you scale and efficiencies.  Lucky you.  But, how comfortable are you that your existing house it stable and will maintain its value?  And wouldn’t it be better to wait, see if any better houses come on the market before or better still just after Christmas?

Many thriving retailers will keep their powder dry at least until they have a much clearer understanding of the exit pathway from Covid.

Many will wish to preserve and protect their balance sheets. Paying low cash (or even paper) for a competitor, a new geographic market, a step up brand or a new channel or category is superficially enticing but realistically how much working capital is that target going to need and for how long?  Will Covid be over by Christmas? Will there be a second spike?  How much (summer) stock is in the warehouse? How much debt? Who has the management bandwith now to do their day job, run an M&A deal and then deliver the integration.  And how do you then manage the other stakeholders: the shareholders, suppliers, employees, banks, landlords and the credit insurers.  I also wonder, from a reputational perspective, whether larger established blue chip brands would wish to be seen to benefit from Covid.

For these reasons, I understand and anticipate from my clients and wider network that few of even the most thriving retailers are going to step up and have a look at an acquisition. Of those that do step up, I expect nearly all will pull back for a good few months yet… leaving a vacuum for the brave, the pre-packers and the financial buyers.

Corporate specialist Ed Persse is part of Osborne Clarke's international retail and consumer team.

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