M&A Summary Q3 2019 - Retail & Consumer Goods

Down from 69 deals announced in Q2, the Canadian retail and consumer business M&A market pulled back during Q3 with 56 deals involving a Canadian party announced during the quarter. The decline between Q2 and Q3 was led by a significant slowdown in M&A activity involving recreational cannabis businesses, which had driven above-average volume in the past four quarters surrounding the October 2018 legalization. Furthermore, the inherent cyclicality of the retail and consumer business industry has also negatively impacted deal volume due to a broadly held belief that our economy is nearing the end of the long and fruitful expansion cycle. Such beliefs have resulted in investors being more cautious in their allocation of capital and more inclined to avoid systemically risky industries.

During 2019, the Canadian retail landscape saw a rapid increase in storefront closures and bankruptcy claims, which affected many notable names once considered industry giants. Companies with a strong Canadian presence that were affected include Forever 21's Canadian locations (Q3), Payless Shoes (Q1), Brampton-based Home Outfitters (Q1), and Georgetown, Ont.'s Green Earth (Q1).

Despite a certain degree of turmoil in the industry, non-cyclical and consumer staple retail and consumer businesses remained viable M&A targets due their less risky and defensive operations in the current economic climate.

Through the final quarter of 2019, broad economic uncertainties and negative media attention, spurred by the aforementioned closing of notable retail storefronts, will continue to influence this sector's M&A volume in Canada. As such, deal volume in late 2019 and 2020 will likely remain consistent or decline as many investors wait for the waters to clear and a more stable outlook to emerge in the retail space.