Growing your retail business during uncertainty: M&A considerations

October 28, 2020

Even in times of uncertainty, growth is still possible. While the retail industry has undoubtedly been hit hard by the coronavirus pandemic, some, such as essential retailers or those with established e-commerce capabilities, were able to maintain steady profits throughout the crisis and in some cases, even thrive.

These retailers may now be in a position to expand. For some, a mergers and acquisitions (M&A) strategy could help to accelerate long-term growth.

As you consider whether this type of growth strategy is right for your retail business, it’s beneficial to think about the type of acquisition—such as a direct competitor or a business with complementary products and services—that works best for your goals, and what a target acquisition could bring to your business.

What should retailers look for in a target acquisition?

Knowing what to look for in a potential business purchase is crucial, and a professional advisor can help you find and negotiate with target acquisitions. While this checklist is not exhaustive, retailers should keep the following considerations in mind.

Product and service mix

Consumer behaviours and preferences have changed significantly since the onset of COVID-19, and will likely continue to change as we experience new phases and additional waves.

Consider whether a target acquisition’s products and/or services will align with the changes that have already taken place and with those expected in the near future, as well as whether they will have long-term significance.

Brand position

A target’s brand reputation and quality could affect overall customer retention and revenue—for better or for worse. Consider also whether a target serves a niche market or offers value-added services that could complement your existing retail business and/or diversify your customer base. This could open up new opportunities for greater market share and scale.

Physical locations

If you’re acquiring brick and mortar locations, are those locations in areas that are accessible to your key consumer demographic? Are the lease terms favourable? Do they have capacity for different fulfillment options, such as curbside pickup? Will you need to invest in changes or renovations to adhere to social distancing and public health requirements?

Inventory management

Being able to move products quickly and efficiently will be a key performance indicator if your target acquisition is another retail business. Issues with inventory management could mean that you, the buyer, will need to invest more when it comes to improving cash flow and operations after a deal is finalized.

Workforce and organizational structure

Integrating new employees and new processes will be a big part of the post-merger phase. Look for areas where a target’s workforce and structure will complement and fill gaps in your existing business, and areas where there might be overlap or friction.

Does your target have a strong management team that can not only support a smooth transition, but also drive future growth? Can the in-store staff deliver a customer experience that aligns with the current needs of consumers as well as your existing brand?

Organizational issues are also important. Does your target have a clear corporate structure? Are you able to merge two legacy cultures? Are there opportunities for improved operational procedures?

Digital capabilities

A potential target may be at a different level of maturity in terms of customer-facing and back-office technology. As a buyer, it’s important to identify strengths, weaknesses, and gaps as quickly as possible. A target with more advanced digital capabilities could be a more valuable acquisition, whereas a severe digital mismatch could result in supply chain problems, lost customers, data discrepancies, and wasted resources.

How can BDO help

An acquisitions strategy is not for every business owner, but if your retail business is in a position for growth, it’s important to consider all avenues. Our team can help you examine your options and develop a strategy that aligns with your goals and mitigates risk.

Our Retail Advance service bundle is designed for retailers who are ready to expand, whether now or in the near future. Contact us to learn more.

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